This past week, Colliers published its “Top Office Metros Snapshot” focused on ten of the nation’s most notable office markets. All of these are among the top 20 metros occupied by GSA so we take an interest in this report. The results indicate improvement (from the investor’s viewpoint) in most markets, but there are laggards, including the federal government’s headquarters town, Washington, DC.
- Three markets — Manhattan, the San Francisco Bay Area and Seattle — have office vacancy rates well under 10% and saw no increases in the second quarter. These rates are substantially lower than those in the other seven markets.
- Office leasing in Manhattan shows little sign of abating and remains on par with activity in the first half of 2016. Although new supply will be entering the market, this is not a concern given the shortage of large blocks available for lease.
- Concerns over the impact of new supply in San Francisco and Seattle are receding, but two markets — Los Angeles and Washington, D.C. — remain exposed to construction risk.
- Overall office vacancy is rising in Chicago, but confidence in trophy Class A space located downtown remains strong. In addition to construction kicking off on another major office tower, Blackstone is investing more than $500 million to upgrade and reposition the Willis Tower.
- Boston and Dallas remain on solid ground. Office rents in Dallas have risen to an all-time high, and leasing volume for Class A space in Boston’s Financial District has picked up considerably.
- In Houston, vacancy is back above 20% and there is no appreciable leasing traction on the large inventory of sublease space. Any turnaround in the market is dependent on a rebound in oil prices.
Officials at GSA should take note that many of the improving markets are also GSA regional hubs. However, Washington, DC, notably, remains soft. Despite negative net absorption, construction activity has picked up. The forecast is for continued softness and stagnant rents, with increasing vacancy rates, especially in the Class B and second generation Class A buildings favored by government tenants.
With budget austerity likely to persist, Washington, DC’s concession-heavy market is providing some welcome relief to GSA as markets elsewhere are creating challenges.
Download the report here.