BK Perspective Real Estate USA 2016

Perspective on Real Estate 2016 - U.S.
Office
Office demand continues to outpace supply, leading
vacancy to lows last seen before the Great Recession.
According to CBRE-EA, office demand in the major
markets it tracks rose by 58.4 million sf during the
year ending in the third quarter of 2015, up from 51.9
million sf in the prior four quarters. Demand growth
is not as strong as it was during 2004–06, but net
absorption is poised to exceed net completions for
the fifth consecutive year in 2015 (see Fig. 4.6).
CBRE-EA data show office vacancy at 13.4% as of
3Q 2015, 10 basis points lower than its level in the
second quarter and 80 basis points lower than 3Q
2014. CoStar reports a lower vacancy level, at 10.3%,
but trends are similar, with this vacancy rate being 20
basis points lower than the prior quarter and 60 basis
points lower than the prior year. According to CBRE-
EA, urban submarkets have modestly outperformed
suburban submarkets over the past year in terms of
vacancy contraction, but both urban and suburban
areas have improved significantly. More than 60% of
all office submarkets have experienced a year-overyear
decrease in vacancy for five straight quarters,
qualifying this period as the most geographically
widespread improvement since 2006.
Interestingly, looking only at aggregated urban and
suburban areas in each market, rather than individual
submarkets, the improvement seems even more
widespread. CBRE-EA data show that more than
80% of both urban and suburban areas in the U.S.
experienced vacancy decline year-over-year as of 3Q
2015. Prior to the past four quarters, the last time
over 80% of urban and suburban areas improved
simultaneously was in 1995 (see Fig. 4.7).
The reason such a higher percentage of aggregated
urban and suburban areas are seeing declines versus
the individual submarkets is owed to the magnitude
of vacancy change among the individual submarkets.
According to CBRE-EA, there were 167 submarkets
with over a three percentage point decrease in
vacancy over the past year, compared to 81 with an
increase of at least three percentage points. Large
Fig. 4.6
Office Fundamentals
Fig. 4.7
Share of Markets with Declining Vacancy
Change in Supply/Demand (SF, 000s)
125,000
100,000
75,000
50,000
25,000
0
-25,000
Forecast
-50,000
4
Change in Demand
-75,000
Change in Supply
Vacancy
2
-100,000
Vacancy (Perspective 2015)
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
18
16
14
12
10
8
6
Vacancy(%)
Source: CBRE-EA
% of Markets w/Y/Y Decline in Vacancy
100
90
80
70
60
50
40
30
20
10
0
Suburban
Urban
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: CBRE-EA
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