Developers satisfy tenant demand for high-quality space
- New supply totaled 12.3 million sq. ft. in Q1, only slightly below the two highest quarterly totals of this cycle. Since surpassing 10 million sq. ft. in Q3 2015 for the first time since 2009, completions have exceeded this mark in 10 of the past 11 quarters.
- Nearly 70% of space delivered in Q1 was pre-leased at the time of completion, reflecting strong tenant demand for high-quality, efficient space. Nearly half of total square footage currently under construction has been pre-leased, with even higher pre-lease rates in some of the most active development markets, including San Francisco, Washington, D.C., Seattle, Dallas/Ft. Worth and San Jose.
- Net absorption totaled 5.5 million sq. ft. in Q1, with positive absorption in both the downtown and suburban markets. Net absorption has been positive for the past six years and in 31 of the past 32 quarters. Two-thirds of the metros tracked by CBRE Research posted positive net absorption in Q1, on par with the share of markets posting quarterly net occupancy gains in 2017. Tech markets continued to lead, with San Francisco and San Jose registering a combined 2.6 million sq. ft. of absorption, and Boston and Seattle each posting more than 1.0 million sq. ft. of absorption.
- The overall vacancy rate ticked up by 20 basis points (bps) to 13.3% with the addition of new supply. The markets with the largest vacancy decreases were geographically dispersed and primarily small- and mid-sized, including Palm Beach County, Westchester County, Portland, Salt Lake City and Richmond.
- Rent growth slowed in Q1 from recent peak rates. The average gross asking rent increased by 0.7% from Q4 2017 and by 1.4% from a year ago. Annual rent growth in the suburban markets (2.3%) outpaced the downtown markets (0.2%) for the fifth consecutive quarter, reflecting a recent shift in momentum toward suburban markets that were slower to recover earlier in the cycle. Ninety percent of metros registered year-over-year rent growth, led by Greenville, Orange County, Atlanta, Oakland and Charlotte, which each posted an increase of more than 7%.