West Coast technology and energy firms continued to lead the U.S. office recovery in the second quarter of this year, according to Jones Lang LaSalle's Second-Quarter 2012 Office Highlights Report. In addition, the Chicago-based Jones Lang LaSalle reports that although net absorption inventory levels entered into the ninth consecutive quarter of occupancy growth, they are still behind 2011 levels.
‘Outside of the technology and energy markets, we're not seeing many segments demonstrating growth,’ says John Sikaitis, senior vice president of research at Jones Lang LaSalle. ‘While the Mid-Atlantic cities led our recovery in 2010, New York City and Washington, D.C., have moved to flat positions largely because they are closely tied to the uncertainty of Europe and the regulatory and political environments.’
The technology industry accounted for 46% of net absorption, with the energy market trailing with 23%. While in 2010 the East Coast comprised 85% of net absorption totals, that level decreased to 23% in the second quarter.
Jones Lang LaSalle also determines leasing activity to be "very depressed" – while up nearly 10% from the first quarter of this year, it is down 17% year-over-year. In addition, vacancy declined to slightly 17.3%, its lowest point since early 2009.
For the first time in three years, sublease space upticked slightly in the quarter.
Florida, Arizona and parts of Southern California are experiencing a strong rebound, growing at triple the rate of the rest of the U.S. in the second quarter.
Furthermore, construction remained low across most markets, although activity has increased in markets including Atlanta, Charlotte, Dallas, Houston, New York, Northern Virginia, San Francisco, Silicon Valley and Washington, D.C.
‘As we move into the second half of 2012, we remain confident the domestic office recovery will continue, be it at a still-continued slow and steady pace,’ says Sikaitis. ‘Although growth levels appear to be slowing gradually in markets dominated by technology and energy demand, tenants will continue to see their leverage slip away with increased rents, decreased concessions and limited quality space options over the near term. In other geographic segments, tenants will continue to have enhanced, but slowly declining, leverage as net effective rents still remained nearly 55 percent below peaks established in 2007.’