Occupiers are showing an increased preference for Class A office space in central business districts (CBDs) and “creative space,” typically characterized by large floor plates with open configurations, according to the latest analysis from CBRE Group, Inc. The Q1 2013 U.S. Office OccupierView reports that occupiers are seeking urban locations in proximity to public transportation, housing, restaurants and nightlife to attract and retain younger, knowledge workers as the “war for talent” heats up. As a result of this, demand for well-located, CBD office space is strengthening in Atlanta, Boston and Washington, D.C., and is driving up rents for Class A space in Boston and Denver.
“Many occupiers, particularly in the technology sector, are placing a premium on close collaboration and regular interaction as a way to foster innovation among creative knowledge workers,” said Brook Scott, CBRE’s Head of Americas Occupier Research, Global Research and Consulting. “Demand for creative space that facilitates this collaboration and interaction continues to take hold in major markets across the country.”
The report notes that the anemic pace of new construction in recent years is paving the way for an acceleration of rent growth. Delivery of completed office projects was modest during Q1 2013. There is 16.6 million sq. ft. of new office space currently under construction in downtown major markets, with another 17.8 million sq. ft. expected to break ground over the next two years.
According to the report, the lack of new supply and modest demand will limit tenant options in certain major markets, putting upward pressure on rents. The CBRE analysis projects rents to increase in the majority of major downtown markets over the next 12 months. “The demand for Class A and creative space will outstrip the supply and elevate rents,” added Ms. Scott.
Federal government sequestration and cost containment strategies among corporate occupiers led to a slowdown in the pace of overall demand in Q1 2013 compared to Q4 2012. The result was a slowdown in the net absorption of occupied space to 3.5 million sq. ft. in Q1 2013, from 8.4 million sq. ft. in Q4 2012. Despite the deceleration, the overall trend remained positive compared to Q1 2012, when the amount of occupied space declined by nearly 1.0 million sq. ft.
To access a copy of the Q1 2013 U.S. Office OccupierView, please click here.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.