Investors are reporting strengthening in the office markets across the US, according to PwC.
The PwC Real Estate Investor Survey for the third quarter of the year showed that the vast majority of office markets are expected to be either recovering or expanding over the next four years. All but seven of 57 office metros studied were either in recovery or expansion.
Because new supply is limited, occupancy rates are set for continued improvement, despite the trend for smaller spaces and non-traditional work arrangements.
Overall vacancy rates for CBD office were at 12.7% in Q2 2014, down from 13% the previous year, according to data from Cushman & Wakefield. Some markets, including New York, San Francisco, Denver, Houston, and Portland, were well below the average, while others, including Dallas, Phoenix, Atlanta, and Baltimore, were above.
The good news extends from prime CBD areas to secondary markets, including Denver, Phoenix, San Diego, Minneapolis, Austin, San Jose, Orlando, Nashville, and Jacksonville. Buyers have been pushed to these cities to escape the fierce pricing and competition in gateway cities and other primary markets.
Vacancy rates even in suburban markets have declined, at 16.8% for Q2, down from 17.1% the previous year. Top performing suburban office markets include Denver, San Francisco and Houston.
Washington DC was an exception. “While the recovery of the Washington DC office market appears to be moving in the right direction, many survey investors still describe its performance as ‘weak or stagnant at best,’ ‘plateaued,’ and ‘bumping along the bottom’,” according to the survey.
As a result, survey respondents were conservative with rent growth expectations, which held steady for the third quarter in a row, at 1.67%.
The report added that the “average expected value increase for Washington DC office buildings is 1.3% – the fourth lowest forecast value change of the survey’s 19 city-specific office markets.”