March 31, 2016
Few markets expect near-term increase in large block availability.
The strongest office markets have seen a surge in construction and pre-leasing activity in recent years, whereas slower-to-recover office markets have seen little-to-no new supply. So with tenant demand strengthening in most markets, how do these trends shake out for owners and occupiers?
CBRE Research’s February 2016 survey of the largest office markets reveals that tenants in most markets are unlikely to see an up-tick in the number of large block options during the next six months. In fact, just three of the 21 markets surveyed indicated expectations for an increase: suburban Houston due to softness in the energy industry, and suburban Dallas/Ft. Worth and downtown Seattle due to active construction pipelines. By comparison, the number of blocks increased in six markets during the previous six months. Houston is the only market expecting an increase in large block availabilities in both Class A and Class B space.
On the flip side, owners in markets with decreasing availabilities and improving demand are poised to benefit. Construction is very limited in many of the suburban markets in which the number of large blocks is expected to decrease or remain unchanged during the next six months. In some markets, rents remain below levels needed to make speculative development financially feasible, constraining supply even as tenant demand strengthens. Given our expectations for continued solid job growth, even amid recent financial market volatility, owners will likely experience greater leverage in negotiations, especially for high-quality properties in submarkets with amenities such as easy transit access, walkability, and ample retail and entertainment options.
Andrea Cross | Head of Office Research
CBRE | Office Research
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