Office Preliminary Trends, Q2 2020

National Highlights

Net absorption in the office market was negative 977,000 square feet in the second quarter following negative absorption of 2.16 million square feet in the first quarter. Construction was 3.3 million SF, well below the average of 11.8 million square feet built quarterly in 2019.

 

Office: National Vacancy & Rent Trends

Source: Moody’s Analytics REIS

 

Statistics by Metro

In the office market, five metros saw a vacancy rate increase of 1.0% or more led by Tucson (+2.4%), Cleveland (+2.3%), Richmond (+1.8%), Dayton (+1.1%) and Oklahoma City (+1.0%). Still, 25 metros saw a decline in vacancy led by Phoenix (-0.5%) and Chicago (-0.3%). New York City’s vacancy rate declined 0.1% while San Francisco’s rose 0.3%. Of the 79 metros, 63 posted an effective rent decline led by Tucson (-1.5%), Rochester (-1.2%) and Greenville (-1.2%); while 12 metros saw an increase in office rent in the quarter led by Minneapolis (+0.6%), Suburban Virginia (+0.5%) and Tacoma (+0.5%). New York’s average office rent fell 0.6% while San Francisco’s declined 0.1%.

 

Office: YoY Effective Rent Growth

Source: Moody’s Analytics REIS

 

Conclusion

The office market may have seen the slightest impact, but this was likely due to the 5-to-15-year term structure of leases that kept the market intact. Still, the forced work-from-home option driven by the pandemic has prompted many office planners to reconsider future office needs which will impact the office market for years. Thus, our outlook remains cautious: vacancies will continue to rise, but less so in the apartment market given how slowly the numbers have moved over the last two quarters. However, rent declines will likely accelerate in the next two quarters, particularly if the PPP and unemployment insurance is not renewed as companies and tenants continue to face uncertainty in the wake of the second surge of the coronavirus.

 

Note: Preliminary trends are subject to revision.
Copyright © 2020 Reis Inc.

 

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