Office vacancies dipped below 16 percent nationally in the second quarter of 2016. This marks the lowest vacancy rate since the recession began seven years ago, according to new data released by Reis Inc. That bodes well for landlords of office buildings who are seeing demand high and profits rising.
In the Omaha metro area office vacancy rates are below the national average, ranging from 13 percent downtown to just 4.6 percent in the suburban West Dodge corridor.
“Large, name-brand firms are opening new offices in primary and secondary markets, trying to tap into new talent pools,” says Julia Georgules, vice president of JLL research. “In some places, the high-demand urban core is becoming too expensive, and tenants are looking for fringe areas.”
More than 100 million square feet of new construction is in the pipeline nationally, but that has softened rents. Office rents rose 1 percent in the second quarter over the first quarter, Reis reports. About 65 percent of the new supply has been focused on just 10 markets, such as Dallas/Fort Worth and Southern California, Georgules notes.
“Occupancy growth is just trailing new supply,” Georgules says. “A lot of tenants want to wait until more supply comes in, so you have developers breaking ground speculatively based on strong market fundamentals.”
Investors still see big potential with office properties. For 2016, employers are on track to hire 2.1 million workers. Also, office properties are the only major commercial property type that has yet to regain its prior peak pricing, according to a report by Marcus & Millichap. That report and one by JLL predict that office rents will rise nearly 4 percent this year, and the vacancy rate will drop by 30 basis points this year.
As such, landlords likely will continue to find big returns in the office market well through 2017 in most areas, while then stabilizing by 2018, according to JLL.
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