IRVINE, CA—Auction.com today released its rankings of the national office sector's top buy and sell markets based on current and expected fundamentals. San Jose, CA, San Francisco, Seattle, Orange County, CA, and New York City topped Auction.com's list of buy markets, each boasting strong demographics, one or more booming business sectors and improving payroll growth.
Pittsburgh, Fort Worth, Texas, Houston, Memphis, TN, and Cincinnati were identified as the most recommended sell markets based on factors specific to each, including dependence on the energy sector, weak employment growth or lethargic demographics.
“As nationwide office fundamentals continue to recover in 2015 and the tech industry paces the nation's best-performing markets, investors still must take note of the sharp contrasts between the have and have-not markets,” said Auction.com chief economist Peter Muoio. “Investors will find sustained rent growth and strong occupancy on the West Coast and in tech-driven markets that we predict will enjoy continued success. Other markets, meanwhile, face an abundance in supply that is overwhelming demand and weighing on rent, and this could persist.”
For GlobeSt.com's in-depth interview with Auction.com's Peter Muoio about the report's findings, click here.
Auction.com's report notes sharp differences between individual markets and regions despite very little change in fundamentals for the office sector at the national level. The most strength is seen in markets abetted by the technology surge: the West Coast, New York City and Boston. Washington D.C., having navigated through its recent supply and demand mismatch, now offers improved prospects, as do Denver, Atlanta and Phoenix.
“The health of an office market depends on more than what's happening in a particular segment of the economy, although markets with high-tech companies are certainly faring better today than markets that depend on energy companies,” noted Auction.com executive vice president Rick Sharga. “But the economic health of a region — its ability to create good-paying, full-time jobs — is what really drives the underlying fundamentals, and determines whether a market should be in buy or sell territory.”
The Office Sector's Top Five Buy Markets:
San Jose
San Jose's economy continues expanding at a torrid pace, driven primarily by the supercharged growth of the tech industry. Employment is up a substantial 12.4% from its prior cyclical peak and 5.6 percent from a year ago. Payrolls stand at an all-time high on the heels of 15.3% year-over-year growth and unemployment has trended below the national average since 2012, falling into the low 4% range. Though its performance hinges on the health of the technology sector, San Jose remains one of the strongest office markets in the country.
San Francisco
San Francisco's economy is maintaining its profound post-recessionary surge as total employment reached a record high, recently at 4.5% year-over-year growth. The information and business/professional sectors continue posting excellent employment gains at or above the previous record peak in 2000. Unemployment continues tumbling to the mid-3% range — well below the U.S. average. Rents are skyrocketing more than 6% higher than a year ago — and we expect growth to continue to average above 6% annually over the next four years with seven percent NOI growth.
Seattle
Seattle's strong expansion continues with hearty growth. Total employment surged to an all-time high, up 5.9% from its prior cyclical peak. The professional/business services sector has been a key part of this trend, with payrolls at a record high and 5.3% higher from one year ago. Unemployment has hovered well below the national average since 2011 and is 90 bps lower than a year ago. Population growth is still more than double the US average, providing a foundation for economic gains.
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David Phillips
David Phillips is a Chicago-based freelance writer and consultant with more than 20 years experience in business and community news. He also has extensive reporting experience in the food manufacturing industry for national trade publications.
