U.S.
office space rent rises at fastest clip in a decade:
report
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[April 08, 2015]
By Herbert Lash
NEW YORK (Reuters) - Stepped-up business
hiring pushed the rental price of U.S. office space up 3.1 percent in
the first quarter, the highest quarterly gain in a decade, as demand for
commercial real estate accelerated, according to Jones Lang LaSalle Inc.
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Though occupancy growth in office space slowed to just over 6
million square feet from about double that pace throughout 2014,
development activity and rental growth in particular sped up, JLL
said in a report to be released on Wednesday.
The commercial real estate expansion is being driven by technology
companies looking for the best office space in the central business
districts of key U.S. cities.
New York City, in particular the midtown area south of 34th Street,
has the lowest vacancy rate across the United States and one of the
highest growth rates in rental prices, said JLL, a global commercial
real estate firm.
Cambridge in Massachusetts, Austin in Texas, Palo Alto in California
and the South Lake Union district in Seattle also are experiencing
high demand, while lower quality buildings in suburban areas are
seeing the lowest demand.
"The Midtown South section of New York City is demonstrating some of
the tightest fundamentals in the market as a whole around the
country," said John Sitkaitis, managing director of office research
at JLL.
"Those types of markets which cater heavily toward technology
tenants are showing way-below market vacancy rates and way-above
market rental rates."
The need for modern infrastructure is a major reason why "Class A"
buildings are in demand by the so-called TAMI companies -
technology, advertising, media or information - according to Dara
McQuillan, chief marketing officer at Silverstein Properties Inc.
"These tech companies rely on heavy infrastructure, and they only
have that in new buildings," McQuillan said. "That's the sector
that's driving New York real estate today."
Increasing constraints in the supply of office space in U.S. city
centers resulted in a 6.1 percent quarterly jump in rents compared
to a 0.9 percent increase in the suburbs, said JLL.
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What JLL called a massive uptick in leasing activity and rising
rental prices will result in a tighter market for office space, and
will give landlords further reason to aggressively push up rental
prices at double-digit rates over the next 18 months.
Vacancy levels remained unchanged across the United States at 15.6
percent in the first quarter, but they are expected to fall below
15.0 percent by year end as corporate expansions boost occupancy
over the next several quarters.
JLL said in its U.S. Office Outlook report that it is "consistently
seeing rent growth, quarter in and quarter out, across 90 percent of
markets JLL tracks."
Major areas that are not participating in the rising market are the
New York suburbs, parts of the Great Lakes region and Houston, where
rents have declined over the past two quarters as energy prices
tumbled, JLL said.
(Reporting by Herbert Lash; Editing by Ted Botha)
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