Office Outlook: Vacancy Declines, Rents Rise in 2014

Office vacancy across the U.S. is expected to continue declining next year, dropping approximately 80 basis points to 14.3 percent by year-end, according a CBRE Group office market outlook. The positive trend is expected to continue into 2015 with vacancy landing at approximately 13.5 percent for the year.

“The office market recovery is poised to accelerate in 2014, as an improving economy should result in increased office-using employment. The growth in office-using occupations, particularly in high-tech industries, is increasingly pacing demand for office space,” says Arthur Jones, senior managing economist of CBRE Econometric Advisors. “Home prices have also risen and will soon become an important source of wealth to consumers, which should further bolster the strength of the economy and aid the office market recovery.”

Rents are forecast to rise slightly during the same period, increasing approximately 3 percent next year and another 4.4 percent in 2015, according to the report.

“We should see a broader and more sustained recovery in occupancy and rents in 2014 and beyond, as employers continue to hire office workers and more markets bounce back from the housing crisis,” added Mr. Jones.

Office development, which has hovered near historic lows in recent years, is expected to remain subdued through 2015. Markets with high growth among high-tech and energy-related industries, including New York, Boston, Washington, D.C., Houston, Dallas, San Francisco, and San Jose, Calif., will comprise approximately 70 percent of all new office development through year-end 2016, according to the report.