Tags: office | rent | San Jose | Dallas

Office-Rent Gains Led by San Jose, Dallas in Leasing Growth

Wednesday, 01 Oct 2014 10:56 AM

San Jose, California, and Dallas led the U.S. in office-rent increases in the third quarter as cities benefiting from growth in the technology and energy industries outperformed the gradual national recovery.

Rents after any landlord discounts, known as effective rents, climbed 6.7 percent from a year earlier in San Jose, compared with the U.S. average increase of 2.6 percent, property researcher Reis Inc. said. Dallas rents rose 5.2 percent, followed by San Francisco’s 5.1 percent gain, Houston’s 4.4 percent increase and New York’s 3.9 percent advance.

The national sluggishness in the office market’s growth is being bucked by parts of Northern California and Texas, where large bases of technology or energy workers drive demand for space, Reis said. Throughout the U.S., increases in office occupancies show that the market “is in the midst of a recovery,” according to the New York-based company.

“Five years removed from the advent of economic recovery in the United States, the office-market recovery remains in early stages,” Ryan Severino, senior economist at Reis, said in the report. “If the labor market recovery continues its acceleration, this will change, but through the third quarter of this year its struggles continue.”

Nationally, payrolls expanded by 142,000 jobs in August, less than economists estimated, putting the unemployment rate at 6.1 percent, Labor Department data show.

Occupancy Gains

Office landlords nationwide had net occupancy gains, known as net absorption, of 7.16 million square feet (665,000 square meters) in the third quarter, up from 6.65 million square feet a year earlier and 3.17 million square feet in the second quarter, according to Reis.

The gains outpaced new supply last quarter, Reis said. Completions of new office space totaled 4.79 million square feet, down from 5.98 million square feet a year earlier and 4.82 million square feet in the second quarter.

Demand for office space in technology- and energy-oriented areas has fueled construction even as the national vacancy rate stands at 16.8 percent, unchanged from the second quarter and down from 16.9 percent a year earlier.

Dallas, the country’s fifth-largest office market, ranked behind only New York in office construction this year through September, according to preliminary data from Reis. Dallas developers completed 1.54 million square feet of new office space, almost triple the 569,000 square feet added a year earlier.

“They’ve been riding the coattails of what’s been going on in the energy market the last few years,” Severino said in a telephone interview.

Health Care

Aside from energy-related companies, major employers in Dallas include health-care companies, financial-services firms and educational institutions. From 2010 through the second quarter of this year, 296 companies expanded or relocated in the four major Texas markets, according to a Sept. 30 report by CBRE Group Inc., the largest commercial real estate brokerage.

San Francisco office rents, the highest in the U.S. after New York and Washington, climbed the most from the previous quarter as the technology industry surpasses the late-1990s boom. Year-to-date office leasing in San Francisco has broken the previous record, from 1999, according to a Sept. 22 report by brokerage Cushman & Wakefield Inc.

The Bloomberg Office Real Estate Investment Trust Index returned 9 percent with dividends during the past year, lagging behind the 11 percent total return of the broader Bloomberg REIT Index.

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San Jose, California, and Dallas led the U.S. in office-rent increases in the third quarter as cities benefiting from growth in the technology and energy industries outperformed the gradual national recovery.
office, rent, San Jose, Dallas
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2014-56-01
Wednesday, 01 Oct 2014 10:56 AM
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