New York City, Washington, DC Rank as Tightest Office Markets

NEW YORK CITY-With the national office market continuing to move toward equilibrium, leasing activity remained healthy last quarter and the overall availability rate declined 1.6 percentage points to 15.8%, according to Studley’s Third Quarter Report. An In specific areas, Washington, DC registered a 7% availability rate and New York City came in behind it with a 10% availability rate as both continued to rank as the tightest markets, the firm reports. Following those are Orange County, Suburban Maryland and Northern Virginia with rates of 11.9%, 11.9% and 12.1% respectively. However, on the other side of the coin, the report ranks Dallas/Fort Worth, Atlanta and Denver as the softest markets with availability rates of 25.8%, 21.3% and 21.4%, respectively.”One thing that is interesting,” says Joyce Geiger, senior vice president of national research services for Studley, ” is that even though availability rates have consistently declined, we haven’t seen an increase in proposed or under construction office buildings.”She adds that the industry would expect to see some signs of activity as available space decreased for almost 10 consecutive quarters.Overall, Studley reports, leasing activity reached 47.4 million sf–a 1.2% increase over the third quarter 2004. The greatest amounts of growth in leasing activity were reported in Greater Philadelphia, with +152%; Suburban Philadelphia, with +73.1%; and New Jersey, with +73%. The markets registering the greatest decline were Houston, with -48.4%; New York, with -33.1%; and Tampa Bay, with -15.6%.Also following an existing trend, Studley found that rental rates are continuing to increase, with an overall jump of 8.5% over last year to an average $23.71. However, the rate is still lower that mid-year 2001 when rates peaked at $25.43, according to the firm. Areas with the most growth in rental rates were San Francisco, with +24.5%; Northern Virginia, with +10.6%; and Orange County, with +9.9%. Houston showed no overall change. In other notable findings, Studley reports that investors are showing increasing interest in Atlanta and that construction is currently under way with or without preleasing of office tenants. In addition, Chicago’s Downtown saw a 127.3% increase in leasing activity from last quarter, although suburban leasing slowed for the fourth quarter and the year.Another interesting find, according to Geiger, is that San Francisco is coming back in terms of its economy and residential market, however, the office sector is not demanding much more space. “ A lot of the fundamentals have improved but job growth in the office-using sector seems resistant,” she adds. One city to keep an eye on is Denver, she explains. “Denver is steadily improving,” Geiger explains. Several favorable variables are contributing to the city’s economy, including infrastructure improvements, and the city has “a lot of momentum right now. The variables speak well of [Denver's] short-term future potential.”Philadelphia is also a city to watch, however, but for different reasons. “There are a lot of new buildings but will the city cannibalize itself? It’s an interesting question,” Geiger says.