Office Top & Bottom Markets, Q2 2019

Office Top & Bottom Markets: Effective Revenue Growth

The U.S. aggregate year-over-year effective revenue growth this quarter was 2.0%, just a tiny bit lower than last quarter’s 2.1%. Similar to last quarter San Francisco had a high growth rate of 4.5%, but this quarter the chart is topped by Seattle at 4.7%. Other top markets in the office sector had growth rates around 4%, just like last quarter.


Effective Revenue Per SqFt, Percent Change 2018Q2 – 2019Q2

Source: Reis, Real Estate Solutions by Moody’s Analytics

The chart above ranks markets by their year-over-year effective revenue growth, which is calculated as the annual change of effective rent multiplied by the occupancy rate. On the left side of the chart, we have the five markets with the highest effective revenue growth, and on the right side, we have the five markets with the lowest effective revenue growth. The navy blue bars represent the metro-level growth rates, and the gray and teal bars represent the submarkets with the highest and lowest growth rates in the metro. The underlying shapes, which can be interpreted the same way as a histogram, represent the growth rate distribution for all properties in the metro. To remove outliers and create a useful visualization, we use data from the 10th to the 90th percentile for the property level distribution.


Compared to last quarter, metros in the bottom five performed slightly worse. In our last iteration of this chart, the worst performing market had a growth rate of -1.5%. This quarter, Rochester had a growth rate of -3.5%. Columbus, the top of the bottom five markets, had a growth rate of -0.8%. While many of the distributions on the bottom five have a decent proportion of negatively performing properties, many properties did have positive performance. The top-performing property on the chart is in Dayton, and it had a growth rate of just over 30%. Sub-market level location is an important consideration for office property performance, especially given the slow and unspectacular performance of the office sector overall seen over the last couple of years and expected into the future.


Analysis by Shan Ahmed. Ahmed is an Associate in the Economics Department at Reis. He is responsible for the firm’s custom client projects and real estate portfolio analytics services. Shan holds a bachelors degree in Economics from The University of Texas at Austin

Copyright © 2019 Reis, Inc.


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