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U.S. Office Market: Healthy Fundamentals in First Quarter of 2019

34th Consecutive Quarter of Positive Absorption

CHICAGO – Asking rents trended higher, remaining in record territory, while the U.S. office market posted its 34th consecutive quarter of positive absorption, according to Cushman & Wakefield’s Q1 U.S. Office MarketBeat.

Maintaining an upward trajectory that began in early 2011, U.S. office average asking rents continued to trend higher, reaching a record high of $31.97 per square foot (psf) in the first quarter of 2019. The national average asking rent was up 1.5% from the Q4 2018 and 3.9% year over year (YOY). Since reaching a trough in the second quarter of 2011, the national average rent has increased 29.7%. Seventy of the 86 markets tracked by Cushman & Wakefield recorded increases in asking rent YOY, the largest number of markets with rising rents since the end of 2015.

After a strong fourth quarter of 2018, job growth slowed slightly in the first quarter of 2019, impacting the U.S. office market. Employment in office-using industries—financial services, professional and business services, and information—rose an average of 38,000 per month in the first quarter, however, this is the slowest quarter of job growth since the first quarter of 2016.

New leases for office space totaled 70.0 million square feet (msf) in the first quarter of 2019, down approximately 6.3% from the 74.7 msf of new leases in the fourth quarter of 2018. A total of 6.7 msf was absorbed across the U.S. during the quarter, said Revathi Greenwood, Cushman & Wakefield Americas Head of Research.

“Because absorption tends to vary from quarter to quarter, the first-quarter slowdown is not, by itself, a concern,” Greenwood said. “For example, absorption fell to slightly more than 7.0 msf in the first quarters of both 2017 and 2018 and then rebounded later in each of those years. More importantly, the first quarter represents the longest string of positive office absorption in more than two decades.”

The West region, which boasts some of the highest rent growth and lowest vacancies in the U.S., bore the brunt of most of the slowdown as new office leasing declined 3.5 msf from the previous quarter, due largely to a 3.0 msf decline in leasing in Silicon Valley.

Compared to a year ago, national new leasing also dipped, down -6.3 msf (-8.2%). Here, too, the West region accounted for the lion’s share of the decline (-5.1 msf). Despite the slower leasing activity in Silicon Valley, the technology sector was still the largest lessor of office space, accounting for approximately 25% of the top leases signed across the U.S. The sector with the second-highest leasing volume was financial services at 12.4%, followed by the real estate sector (largely co-working) at 7.9% and medical office at 6.3%. The tech-dominated West region accounted for a disproportionate share of leasing volume, representing 35% of total new leasing.

Among the major markets tracked, San Francisco boasted the lowest vacancy rate at the end of the first quarter of 2019 at 5.8%. It was followed by Puget Sound/Eastside in the Seattle region, 5.9%; Inland Empire, 7.2%; Seattle, 7.8%; and Raleigh/Durham, 8.0%. The West region recorded the lowest vacancy rate at 11.3%, down 70 basis points YOY.

Asking rents at the close of the first quarter of 2019 were highest in the Northeast, led by the three Manhattan markets: Midtown South, $80.62 psf; Midtown Manhattan, $75.42; and Downtown Manhattan, $63.27. Two Markets in Northern California were also among the most expensive: San Francisco itself, $77.26, and San Mateo County, $60.67. Markets with the strongest rent growth YOY were a virtual “who’s who” of tech-driven markets: Midtown South Manhattan, 16.6%; Silicon Valley, 10.0%; San Francisco, 8.2%; and Raleigh/Durham, 8.0%.

New construction remains concentrated in strong markets: Midtown Manhattan, (14.5 msf under construction) led the way followed by Silicon Valley (6.6 msf), Austin (5.6 msf), Chicago (5.0 msf) and Nashville (5.0 msf). The top 10 markets with the most construction include those five plus San Mateo County, Charlotte, Boston, Seattle and Atlanta. These 10 represent roughly 48% of all the new construction in the nation.

“Looking ahead, U.S. economic activity is expected to remain steady in 2019, which should lead to stronger leasing volume and net absorption as we progress through the year,” said Ken McCarthy, Cushman & Wakefield Principal Economist and Americas Head of Applied Research. “Although, vacancy may tick up slightly due to the rising volume of construction, asking rents are likely to continue to rise steadily, especially in tighter markets. We expect the tech sector to remain the largest lessor of space for the balance of the year, in addition financial services and coworking should post steady growth as well.”

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit or follow @CushWake on Twitter.

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