Though it has been one of the slower sectors to experience financial recovery, the office sector is making moves in the right direction. Data from a number of research and investment firms point to strong performance in the years to come, and commercial real estate investors would be wise to take note.
Fundamentals for the office sector have picked up over recent years, including occupancy improvements, continued job growth and a constrained introduction of new supply. As the Bureau of Labor Statistics reports, 215,000 new jobs were added in March 2016, and the unemployment rate remains at 5.0 percent.
What’s more, the National Association of Realtors forecasts that office vacancies will decrease throughout 2016 and into 2017, from 13.4 percent in the fourth quarter of 2016 to 12.7 percent by 2017. Research firm Green Street Advisors offers correlating figures, stating that office property values experienced a 5.0 percent increase over the past year. It predicts NOI growth to measure just above 4.0 percent through 2020.
The Urban Land Institute is also noting trends in the type of office space businesses now seek. In its 2016 Emerging Trends In Real Estate publication, the nonprofit education and research firm asserts that the square foot per employee is decreasing – likely a result of more shared office spaces and coworking opportunities within the market. The report also indicates that businesses are more likely to go for an open floor plans, doing away with traditional partitions or cubicles.
Location is making as much difference as layout, and Midwestern investors stand to benefit from the fact that the office sector is experiencing some of its greater yields in secondary and tertiary markets. Smaller companies (those with fewer than 50 employees) are responsible for nearly half of job growth in the past two years, but often can’t keep up with pricing in primary markets. Thus, they seek more affordable locations for office opportunities.
If you’re ready to take advantage of these market trends and add commercial office space to your investment portfolio, contact the professionals at Intelica Commercial Real Estate. We can help you evaluate the opportunities that may be right for you.