Reuters reported at the end of the third quarter last year that the office vacancy rate had remained flat at around 16% for three straight quarters. Experts have predicted that the office market will continue to remain generally flat throughout 2018. Yet despite those numbers, there are cities that are really thriving and we found 10 where the office market is not flat but rather booming with low vacancies and high demand.

The State of the Office Market

The overall office market has stayed flat as new construction continues to keep pace with occupancy rates this year. In some places, the tightness of the market has caused the numbers to stand still.

While the overall vacancy rate is hovering around 16%, in NYC, the market there is so tight, vacancy rates are below 9% and in D.C., at 9.3%. Those places are seeing interest rates go up which will continue to slow investments in office over 2018 according to Forbes.

In the third quarter of last year, net absorption totaled nearly 5.5 million square feet. That’s a decrease of about 0.6 million square feet of space in 2016. New construction over that same period of time dropped by 4 million square feet. Now investors are eyeing the suburbs as the best option these days for office space.

For the first time in years, sales of suburban office space overtook the number of sales occurring in big city business districts. Rent increases, asset pricing, and high cap rates in the CBDs (Central Business Districts) are pushing investors to look for assets outside of the city in the suburbs. In some of those places, we are seeing that the office market is not flat but actually booming.

#1: Palo Alto, CA

Costs have become way too high in San Francisco which is pushing those investors out to the suburbs of the Bay Area. Palo Alto is one area where investors are finding convenient locations that are affordable and near amenities.

#2: Washington, D.C.

Asset pricing and rents are now as high as $60 p.s.f. in D.C. because of the rush for CBD assets for the last few years. Now the outer areas of D.C. are being targeted as vacancy rates drop to nearly half the national average.

#3: Herndon, VA

Near the outskirts of D.C. is one suburb in northern Virginia that is attracting new interest due to its location and low rent growth. For the first time in a decade, Herndon, VA near Reston in Fairfax County saw its first rent increase earlier this year as tech jobs in the area attract new businesses to the shrinking office market.

#4: Alexandria, VA

Alexandria, like Herndon is located strategically near D.C. and many amenities. It has attracted a lot of new residents to many of the new multifamily assets going up but it is also experiencing investor interest in its office market.

Curbed conducted a survey in partnership with Realtor.com, the Urban Land Institute, Trulia, Zillow, and RCLCO to see where there is a boom in the office market. Here are 5 cities where office is booming:

#5: Austin, TX

3% job growth will continue to make office space viable in Austin.

#6: Denver, CO 

Amazon plus a number of other big businesses are moving into Denver this year

#7: Portland, OR

Over the next 2 years a scrap yard is set to house 1.5 million square feet of new office space in Portland along with multifamily housing and public parks.

#8: Raleigh/Durham, NC

Research Triangle has attracted new businesses for years to Raleigh leading to more office space currently under construction in the Tobacco District and Warehouse District.

#9: Salt Lake City, UT

Office space in Salt Lake City is going so fast multifamily can’t keep up. With the highest job growth in the country and a plan to redevelop the CBD there, this city will continue to boom this year.

#10: Seattle, WA

Amazon’s leaving Seattle for Denver but it shouldn’t hurt Seattle too badly. There is nearly 13 million square feet of office space slated to go up over the next four years.

 

 


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