Demand for office space in the first quarter of this year flattened as businesses continue to push for space efficiency, according to research released today by Washington, D.C.-based Cassidy Turley.
U.S. office markets absorbed three million square feet of office space in the first quarter, down from 23 million square feet in the fourth quarter of 2012. Although this marks the third straight year of consistent net growth in the office sector, the first quarter demand figures were the weakest since the recovery began in 2010. Vacancy rates in the first quarter remained flat at 15.4% but were 200 basis points higher than pre-recession levels. New office construction increased from 41.8 million square feet in the fourth quarter to 48.9 million square feet in the first quarter of this year.
‘Market fundamentals continue to improve, but at the same time, the office sector is clearly going through a transformation,’ says Kevin Thorpe, chief economist at Cassidy Turley. ‘Many businesses are reassessing space needs and recognizing they can function perfectly well with a smaller, more efficient footprint. As a result, job growth is not giving us the same pop in demand that we have grown accustomed to.’ Â
Dallas was the first quarter's strongest office market, with 728,000 square feet of net absorption, followed by Tampa with 613,000 square feet and Boston with 610,000 square feet. In terms of rent growth, New York reigned in the quarter with 11% year-over-year rental appreciation, followed by Salt Lake City with 10.9% and California's San Jose/Silicon Valley market with 10.3%.