Higher rents and continued growth in Q1 2017 resulted in optimistic forecasts for the United States office market. As a new phase of the economic cycle begins, there is a shift in supply and demand.
The following are three things to keep an eye on in the coming months:
- Tech is still driving demand for office space: Tech leasing activity remains strong, capturing the largest share of leasing volume in Q1 at 24.2%. In comparison, the financial sector took the second-largest share at 14.2%.
- Class A rents are up 3.5%: The current development boom and demand for upgraded, efficient space is driving average asking rents higher. Since 2010, Class A rents have increased by 21.5%—nearly 2.7x faster than Class B rent growth.
- Construction activity is topping out: More than 90 m.s.f. is expected to deliver over the next two years. To combat oversupply, developers broke ground on fewer projects in Q1. In 2018, supply will still likely outpace demand, leading to a slight uptick in vacancy rates in some markets.
New Jersey Office Outlook:
Despite the diminished leasing volume witnessed in the Northern and Central New Jersey office market during the first quarter, this moderation is anticipated to be only a temporary phenomenon, as velocity is expected to rebound in the coming quarters. Several potential leases are in the pipeline, while others are close to being finalized pending the approval of state economic incentives.
Furthermore, nearly 5.0 million square feet of requirements were navigating the state’s office market in early 2017. Most of this demand will again be focused in the Class A market, which was the product of choice for office occupiers during the past several years. Companies are expected to promote their Class A work environments to help retain as well as recruit new employees. Constrained rental rate growth in most of the state’s sub-markets will also encourage companies to pursue space in amenity-rich Class A buildings for their operations.
Download JLL’s Q1 2017 New Jersey Office Insight report.