CRE Market Expected to Hit its Peak in 2017

A recent Gallup poll discovered that 37% of people have said they telecommute for work. Despite this, in-office employment continues to steadily rise, resulting in even more demand by big employers for newer, high-quality office space.

According to the CoStar Portfolio Strategy Forecast, the delivery of new office projects will hit its peak in 2017. Office vacancy rates have steadily declined, hitting 10.4% in 2016, down 0.3% from the previous year.

This year, it is anticipated vacancy rates will sit at 10.3%.

CoStar Portfolio Strategy Director of Research, Walter Page, anticipates seeing a huge increase in construction deliveries.

"The big news in 2017 for the office market is that we’re expecting a 55% spike in construction deliveries, increasing from 58 million square feet of new office space in 2016 to over 90 million square feet this year," said Page.

On January 1st of this year, there was a total of 138 million square feet of new office space under construction. That number is largely due to office projects that have not yet been completed from previous years, including the massive $1.2 billion One Manhattan West office tower in New York.

Keep in mind, however, that the current construction of 138 million square feet was nowhere near the 200 million square feet in the 2000-2001 year. The surplus of construction in previous years has allowed national vacancies to remain well below long-term averages.

In large metropolitan cities, current construction projects are exceeding historical averages. Denver for example, has 3% of total office inventory, compared to 1.5% historically, with 5 million square feet of construction underway.

Q416officeconstructAccording to CoStar, "The impending wave of new supply will have an impending ripple effect on demand fundamentals such as net absorption, occupancy and rental rates in several large markets in coming quarters."

Absorption totals for newer 4 and 5 Star office properties have declined about 22 million square feet over the last year. This is expected to change fairly soon as larger projects, including Apple's 2.8 million square foot "spaceship" campus, are set to be completed.

Although office vacancy rates for newer buildings, like in San Francisco, are expected to rise, vacancy rates for older, vintage buildings may double in cities, like Denver.


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Do you think we will hit the peak of office construction this year? Let us know your thoughts below!

One response to “CRE Market Expected to Hit its Peak in 2017

  1. Thank you for the information,....and I hope that construction will slow
    as Trump's immigration policies go into affect,..if and when they do. In light of that ,...
    there is a massive complex by Belmar Square in Lakewood,...that will house elderly ... or deaf,.... (and another disability ) .
    That goes against the trend of elderly living out there lives in their own homes.
    But there is a difference between handicapped (and no where to go ) (and I' glad that they have somewhere to go)
    ...and immigrants and Californians coming into the Colorado.
    All of this makes me want to move and get away from the traffic!!!

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