Summary

The U.S. Office market is showing increasing signs of recovery in the first quarter. We continue to witness a movement of companies from the suburbs to downtown to take advantage of affordable rental rates, attractive labor pool, and greater amenities. Despite the higher than normal vacancy rates across the country, there is a growing shortage of larger blocks of Class A space in active markets.

   

Click here to view an introductory video from Ed Schreyer. CBRE Executive Managing Director of CBRE Brokerage Services

 

 National Tenant/User Perspectives

  • Tightening of Class A space due to flight to quality by tenants relocating from Class B properties.
  • Barbell activity as larger and smaller tenants are most active with a lull in the mid-sized users.
  • Tenants exploring longer lease terms to take advantage of lower rental rates.
  • Tenants moving back into downtown markets from the suburbs.
  • Most active industries are technology, healthcare, and law firms.
  • Movement of tech companies to bricks and beam, trendy space.
  • Tenants maximizing state incentives and playing states off one another.
  • High percent of deal activity occurring with tenants within the same market.
  • Uptick on IT project spending.

National Landlord/Owner Perspectives

  • Lack of new supply causing shortage of larger available spaces in increasing number of markets.
  • Landlords continue to offer aggressive lease rates, but beginning to tighten on concessions.
  • Landlords beginning to fund larger tenant improvement allowances.
  • Spec construction being contemplated in several space constrained markets.
  • Rental rates have stabilized with small uptick in several active markets.
  • Vacancy challenged Class B and C properties continue to witness loan defaults.
  • Witnessing positive absorption in most markets.

Capital Markets Perspectives

  •  Debt is driving asset pricing and demand with low yields and aggressive underwriting.
  • Seeing more increases in capital availability than product flows. As the year progresses, the demand from capital will create its own supply.
  • Pricing and bid depth for core assets is approaching 2006 levels with solid support at the upper end of the bid matrix.
  • As competition escalates for the best assets in the best markets, capital is moving out the risk curve in terms of assets and markets.
  • Liquidity has improved in secondary markets and secondary assets. It is not “robust” but it has improved.
  • CMBS has once again emerged as a contender for acquisition financing on certain profile transactions.
  • Trading volume is returning to a “normal” level.
  • Foreign capital is having an increasing impact on our book of business throughout the country.

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