The Ten-X analysis also identifies Memphis, Baltimore, Houston, Fort Worth and Suburban Maryland as areas where investors may wish to consider selling office assets. While the respective employment climates in these markets vary considerably, each is reporting declining rents as new supply meets with slow or even negative absorption rates.

The report specifically highlights slowing employment gains across much of the country. Limited job creation–a dynamic arising in a labor market approaching full employment–is likely to suppress the need for companies to add to or expand office space requirements, slowing absorption.

The Ten-X analysis notes that vacancies remained flat to start the year and have subsequently hit the midyear point with no improvement as of yet and at 16% flat compared with a year ago. Vacancies remain at a level far higher than during the prior expansion. Stalled vacancies have resulted in lower rent growth, with rents advancing at the slowest pace since 2012. Ten-X expects vacancies to reach a cyclical trough of 15.3% in 2018, however the firm's downside recessionary model foresees vacancy levels reaching 17.6% by the end of 2020, which would be on par with the recessionary peak in 2010.

The outlook took note of changes in both technology and workplace culture that have combined to reduce the market demand for office space. The growth of cloud computing has decreased the need to devote on-location space to servers and computers, while the increasing obsolescence of paper filing also lowers space requirements. At the same time, the growing embrace of open-floor plans is lowering the square-foot-per-worker ratio.

“While we're seeing tepid growth nationally, office investors have to be aware of cyclical risks associated with subdued job growth. It is noteworthy that our analysis resulted in downgrades in 17 regions and an upgrade to only one,” said Muoio. “That said, a number of economically vibrant metro areas around America are seeing high levels of absorption and present buyers with strong investment opportunities.”

While office rent growth has slowed in recent quarters, Ten-X expects growth to reach the mid-2% range on an annual basis in 2018. The company's downside recessionary model expects office rents to contract by less than 1% by 2019 and 1.7% by 2020 as vacancies reach recessionary levels.

DALLAS—The US office market outlook shows a sector that has continued its agonizingly slow recovery into 2017, but faces the prospect of rising cyclical risks associated with slower employment growth, according to a report by Ten X Commercial. In addition, the analysis includes the top five buy and sell markets for office properties.

The report pinpoints Dallas, Atlanta, Oakland, Sacramento and Portland, OR as the five US cities showing the greatest promise as buy opportunities for investors of office properties. These markets are boosted by growing populations and strong employment, keeping rents high even as supply additions loom on the horizon.

Though metro unemployment rose above 4% in early 2017, the overall Dallas economy is enjoying a healthy expansion with overall employment at an all-time peak. The professional/business services and financial services sectors are growing at particularly brisk rates, with job numbers increasing year-over-year at 3 and 5%, respectively. Despite the city's economic growth, equilibrium between supply and demand has kept vacancy levels in the 21% range for the past two years. While this vacancy rate is high by the standards of most markets, it is at a level that is generating rent growth. Office rent growth has been robust and rents are projected to reach all-time peaks in 2018, as the availability rate falls below 20%. The Ten-X recessionary downturn scenario for 2019 to 2020 anticipates blows to the Dallas market, with declining rents and diminished NOI.

“Dallas' economy is currently thriving, with extremely strong annual job growth, total jobs reaching an all-time peak and a metro population that has grown by more than 2% year-over-year,” Ten-X chief economist Peter Muoio tells GlobeSt.com. “Office vacancies are actually quite high by national standards, having hovered in the range of 21% for about two years, but effective rent growth has still been significant, as Dallas has historically generated rent growth at higher vacancy levels. Through 2018, we expect rents to continue climbing, while availability tightens to below 20%, but the city could see a steep decline in rents and an erosion in NOI in the event of a cyclical downturn.”

The Ten-X analysis also identifies Memphis, Baltimore, Houston, Fort Worth and Suburban Maryland as areas where investors may wish to consider selling office assets. While the respective employment climates in these markets vary considerably, each is reporting declining rents as new supply meets with slow or even negative absorption rates.

The report specifically highlights slowing employment gains across much of the country. Limited job creation–a dynamic arising in a labor market approaching full employment–is likely to suppress the need for companies to add to or expand office space requirements, slowing absorption.

The Ten-X analysis notes that vacancies remained flat to start the year and have subsequently hit the midyear point with no improvement as of yet and at 16% flat compared with a year ago. Vacancies remain at a level far higher than during the prior expansion. Stalled vacancies have resulted in lower rent growth, with rents advancing at the slowest pace since 2012. Ten-X expects vacancies to reach a cyclical trough of 15.3% in 2018, however the firm's downside recessionary model foresees vacancy levels reaching 17.6% by the end of 2020, which would be on par with the recessionary peak in 2010.

The outlook took note of changes in both technology and workplace culture that have combined to reduce the market demand for office space. The growth of cloud computing has decreased the need to devote on-location space to servers and computers, while the increasing obsolescence of paper filing also lowers space requirements. At the same time, the growing embrace of open-floor plans is lowering the square-foot-per-worker ratio.

“While we're seeing tepid growth nationally, office investors have to be aware of cyclical risks associated with subdued job growth. It is noteworthy that our analysis resulted in downgrades in 17 regions and an upgrade to only one,” said Muoio. “That said, a number of economically vibrant metro areas around America are seeing high levels of absorption and present buyers with strong investment opportunities.”

While office rent growth has slowed in recent quarters, Ten-X expects growth to reach the mid-2% range on an annual basis in 2018. The company's downside recessionary model expects office rents to contract by less than 1% by 2019 and 1.7% by 2020 as vacancies reach recessionary levels.