Office Outlook Remains Positive

July 18, 2016

Office landlords are reveling in recent good news, as reports from Reis, Inc. reveal that the national U.S. office vacancy rate dropped below 16 percent in the second quarter of 2016. This reflects the lowest vacancy rate since the recession began seven years ago, and is a sign that office properties will continue to realize positive predictions through this year and beyond.

Investors can operate confidently, as almost half of the increased lending is driven by positive tenant growth and 46 percent of leases signed in the second quarter were corporate expansions, according to JLL. Even though there’s now more than 100 million sq. ft. of new construction in the national pipeline, rents continued to increase in the second quarter, up by 1 percent from the past quarter.

What’s more, a midyear report from Marcus & Millichap states that commercial office is the only major sector that has yet to reach prior peak pricing. Figures have risen little since mid-2015 and cap rates hold steady around the low-7-percent range, but an increase in first-year returns occurred in the primary markets. Smaller markets present a higher-return option for investors willing to compete with local capital, the report asserts.

Several trusted commercial real estate research firms predict that rents will rise throughout the year, reaching a total of 4 percent growth in 2016, and vacancy will decrease by 30 basis points. With employment levels on pace to recruit 2.1 million workers in 2016, growth is expected to result in greater office demand.

While individual commercial office properties will still have to contend with tenant expectations for transportation, accessibility, upgrades and amenities, the market bodes well for investors overall. If you’d like to take advantage of the trend and learn more about investment opportunities in St. Louis and the surrounding area, contact Intelica Commercial Real Estate today. The professionals on our team have the expertise to help you make the most of the market.