The Blau & Berg Company
May 2, 2016
The office segment of commercial real estate is continuing to see growth. While there was a small increase in vacancy (less than 1%) at the end of the first quarter of 2016, the vacancy rate is at a promising 14% overall. An issue that continues to affect vacancy is company footprints shrinking. Tenants that were in 20,000 square feet are finding that through new floor plans, smaller cubicles, and employees working remotely, they can occupy two thirds of their current footprint and remain effective. With that said, absorption is still on the rise.
One ongoing trend we are seeing is a flight to quality space. Tenants are looking for improved spaces. They are driven by amenities such as quality food service, updated fitness facilities and access to public transportation. Many tenants are still looking in central business districts for space. The lack of space and the higher rents are pushing some tenants back to suburban office markets. To offset the lack of direct access to transportation, some buildings have begun to offer shuttle service to local train stations. They are also starting to offer campus amenities like outdoor meeting areas and bicycle paths. These amenities are all about attracting and retaining employees.
A trend that we are beginning to see is the ticking up of rental rates. I have seen reports that have put this increase as much as 3%. The recent increased absorption and activity in the market is driving this trend; and, we should see rents increasing for the foreseeable future, as the office market continues to correct itself.
With all of this said, it is still a tenant’s market. There is still an abundance of quality inventory in the market. Landlords are still offering generous work letters. But, the question is, “for how much longer?”