US Office Outlook


United States Office Outlook

Continued expansion of the flexible space/coworking sector contrasts with cooling in broader office demand.



Office market fundamentals continue to shift into more balanced, neutral territory. New deliveries are providing a wider range of options for tenants and greater competition among landlords is pushing up concession packages, even as asking rents continue to climb.

During Q1, net absorption totaled just 3.7 million square feet – the lowest annualized level since 2010. Softness within a handful of markets, including Houston, Silicon Valley and New Jersey, created headwinds and reduced national occupancy growth.

Looking forward, near-peak employment and talent shortages in many markets will lead to a slower pace of net absorption on a national level. But projections for economic growth remain strong, and a handful of major technology sector expansions may fuel more activity over the coming quarters.

Here are four things to keep an eye on in the coming months:

  1. Occupancy growth continues to slow – US Net Absorption totaled just 3.7 million square feet in Q1 2018; annualized, this is the slowest rate of expansion since 2010.
  2. Class A vacancy diverging between urban and suburban assets – CBD Class A vacancy dropped by 20 basis points to 11.9 percent in Q1 2018, while suburban Class A vacancy rose by 20 basis points to 16.6 percent.
  3. TI packages are growing more rapidly than asking rents – Direct asking rents increased by 1.5 percent in Q1, considerably slower than the 3.5 percent increase in TI allowance.
  4. Tenant improvement allowances in primary markets continue to rise – Tenant improvement allowances rose by 3.5 percent during Q1 2018 and are now exceeding $75 per square foot in most primary markets.


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