Office Property Market Posts Strong First-Quarter Growth

The U.S. office market grew at a strong pace in the first quarter, an indication of strength in the economy as employers continue to expand.

The amount of occupied office space grew by 10 million square feet in the quarter, and 45 million square feet over the prior 12 months, the strongest yearlong period since 2007, according to real-estate research firm Reis Inc.

The growth helped push vacancy to 16.2%, down from 16.3% the prior quarter and 17.6% in 2010. Rents grew modestly to an average of $25.20 per square foot per year, up 3% from a year earlier, Reis said. The data cover 79 metropolitan areas.

While the growth is stronger than it has been in a nearly a decade, the office market is by no means soaring across the U.S. Rather, the pace of expansion is still considerably slower than in past times of economic expansion, when 15 million square feet to 20 million square feet of expansion was common in a quarter.

One reason for the more tepid appetite is that employers have been packing more employees into less space—doing away with private offices and making smaller cubicles. The result is that companies need less space, which overall has led to slower growth in rents, another plus for employers.

In aggregate, though, the office market’s growth is “accelerating,” said Ryan Severino, an economist at Reis. “Unless there’s some kind of random shock, I think it’s more likely we see an acceleration going forward from here,” Mr. Severino said.

Leading the growth were markets throughout the West Coast, with the Bay Area accounting for the top three markets Reis tracked in the data. Rents in the East Bay, for instance, grew 6.9% from a year earlier, the most in the country, according to Reis.

Orange County and Los Angeles both saw rent growth of 5.1% and 4.8%, respectively, followed by Seattle with 4.8%.

Seattle’s office market has seen explosive demand lately from the technology sector, particularly Amazon.com Inc. and Google Inc., both of which are rapidly growing in new buildings.

But technology isn’t the only growing segment of the local economy. Last week developer Wright Runstad announced it struck a preliminary deal with outdoor gear retailer REI to build a new, larger, headquarters in Bellevue, a dense suburb to the east of Seattle.

“We’ve got a very healthy market dynamic,” said Greg Johnson, Wright Runstad’s president. “I don’t know of anyone who’s shrinking.”

 

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