Office vacancy rates declined or held steady in most major U.S. markets during the first quarter while industrial availability continued to decrease moderately, according to preliminary data from Los Angeles-based CBRE Group Inc.
In the major U.S. office markets tracked by CBRE, Denver recorded the biggest drop in vacancy during the first quarter, decreasing 60 basis points (bps). San Francisco had the second-biggest decrease, with a 40 bps decline. Both markets saw asking rates rise due to heightened leasing activity in combination with constrained supply.
Washington, D.C., and New York registered the sharpest increases in vacancy, at 40 bps and 30 bps, respectively. Decreased activity by the federal government and a cautious financial services sector continue to weigh on these markets.
Among the major U.S. industrial markets, Boston and Miami had the largest decreases in availability rates at 60 bps each. During the first quarter, rents were unchanged but tenant concessions decreased, especially for Class A industrial buildings. Demand for warehouse and distribution space remained high, particularly in New Jersey, Los Angeles and Denver.
CBRE Group found that industrial rents are approaching replacement-level costs, making development increasingly feasible. However, most construction activity remains build-to-suit, while speculative construction was largely confined to markets with shortages of large, contiguous blocks of warehouse and distribution space.
‘Market fundamentals continue to improve as the economy slowly recovers, and the employment picture brightens,’ says Asieh Mansour, CBRE's head of Americas research. ‘Although the economic rebound is tepid by historical standards, real estate markets are being helped by a dearth of new construction, which is allowing excess space to be steadily absorbed. The consolidating federal government sector, however, does provide a drag on the recovery in certain markets.’