Office Top & Bottom Markets, Q3 2018

Office Top & Bottom Markets: Effective Rent Growth

Four out of the top five office markets made a reappearance from last quarter: Memphis, Orange County, Tampa, and Colorado Springs. Aside from Memphis, which had a growth rate of 6% this quarter, the properties in the top five all had growth rates around 4.7-4.8%. For reference, the U.S. Aggregate year-over-year growth rate was 2.3%.

Memphis is an interesting case where the average growth rate masks some information. As the graph below illustrates, there are two peaks in the distribution: a cluster of properties performed at the 6% level while another cluster of properties dramatically outperformed that with a 17-18% year-over-year growth this quarter.

 

OFFICE EFFECTIVE RENT RANKINGS, Q3 2018 - Graph

 

On the opposite side of the chart, Tucson has a similar, although less pronounced pattern: while most properties had positive performance there is a smaller cluster of properties that performed more negatively. New Orleans has a relatively normally shaped distribution, but it is interesting to see the fatter tails at both the top and bottom, indicating there were a handful of outlier properties that performed either very well or very badly compared to most of the other properties in the metro. Out of all the metros in the bottom five, Lexington and Houston have the properties with the worst year-over-year performance. In our sample, Houston had almost 40 properties with year-over-year growth rates more negative than -20%. Lexington had a handful as well.