LOS ANGELES—“The office market in general is as healthy or the healthiest that is has been in several years,” Jeff Rinkov, CEO of Lee & Associates, tells GlobeSt.com about the stats from the brokerage firm's 1Q15 reports. The market had a national absorption of 10.6 million square feet, a stark plummet from the 31.3 million square feet absorbed in 4Q14 and even than the 13.1 million square feet absorbed in the same quarter last year; however, Rinkov notes that vacancies in the quarter also fell by another 10 basis points to 10.9%.

“We are seeing true demand for office growth,” says Rinkov. “In urban areas, we are seeing demand for creative office and adaptive reuse for creative office buildings. A driver for both industrial and office is the whole concept of ecommerce. It seems that ecommerce is the tremendous driver for office space and back-office support space. But one of the challenges of the market today is how difficult it will be for office users to find large blocks of space.”

The low absorption may be due to the limited supply of large blocks of space, as Rinkov mentions. Although creative office as been a major driver of the office market in general, even in more secondary markets like St. Louis, there is still a demand for the more traditional, large block space, and it is becoming more difficult to find. “We are in a part of the economy now that is very robust and growing, and we are definitely seeing growth in service sectors, like accounting or law firms. All of those people that have a need for a resident employee population are looking to large blocks of space,” says Rinkov.

Rental rates continued to increase, although minimally, with a .4% bump to $22.74 per square foot. These gains occurred mostly in primary and secondary markets, and when you look at the 19 markets that the Lee report covers, vacancy rates, absorption and rental increases really fluctuate from market to market. Increasing rents has continued to attract investor interest, and has pushed cap rates to all-time lows. While, value-add investors are also finding great opportunities with creative office conversions.

Of course, job growth is a major driver of the office market, and as the national unemployment rate continues to decline, now dropping below 6%, it means smooth sailing ahead for the office sector. “I think we will continue to see vacancy rates migrate downward, and I think coastally we will see larger rent growth because of demand and absorption in urban areas,” says Rinkov. “I think we will continue to see development in office markets, although as the report comments, in in-land markets and smaller markets, construction will be delayed as it waits for pre-commitment.”

Lee & Associates' 1Q15 reports also covered the industrial and retail sectors.

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.