The decline in office rents appears to be leveling off in a number of major U.S. cities. Some markets such as Washington, D.C. and New York have reached the bottom of the rental cycle, according to a new report by CB Richard Ellis Group.
U.S. office markets continue to lag behind Europe and the Asia Pacific regions, but in Washington D.C. net absorption reached 3.9 million sq. ft. in the year-to-date for the first through third quarters, the first time demand has outpaced supply in multi-tenant buildings since 2007.
"As economic sentiment has improved in most regions across the globe, occupier demand is starting to show signs of picking up,” says Raymond Torto, global chief economist at CBRE. “More companies are looking to expand, and net absorption is positive in a number of office markets this quarter, including Hong Kong, Washington D.C. and London's City and West End districts."
Vacancy declined almost two percentage points over the past six months in Washington D.C. to 10.3%, the largest decline of any U.S. office market. Asking rents increased by 1.8% over the quarter and are expected to remain at current levels or increase slightly over the next six to 12 months in the city.
Globally, office vacancy rates are approaching a peak and starting to fall in most markets, showing a shifting balance between supply and demand as key markets in Europe and Asia Pacific show a degree of rental growth.
London has shown exceptionally strong rental growth over the past year. Prime rents increased in the third quarter to £52.50 per sq. ft., an annual increase of 25% in prime rents since the market low point. Further double-digit growth is expected in the coming year.