Over the past year, there’s been a lot of talk about the future of the office industry. With shared office spaces quickly becoming the preferred choice of a lot of millennial workers across the country, the office sector has been challenged with reinventing itself or being made redundant – for the time being, at least.
With that said, it’s not all gloom and doom in the office industry. Yes, developers, investors, and property owners in this previously iron-clad market do need to use healthy competition as an opportunity for growth, the market itself is certainly not sunk. According to a recent report by REIS, 2017 has been a pretty good year for the office market thus far.
Here are some things that you should know about the state of the office industry and where it’s headed in the future.
1. The Office Market is Growing
No, the office sector isn’t bursting at the seams with development, but it has been doing well throughout the course of 2017. Over the second quarter, rent has increased by 0.4% and has experienced 0.5% growth. While this isn’t the massive expansion rates that we saw in the mid-to-late 2000s, it does imply that the industry is healthy and doing well.
2. Urban Areas are Hot
Now that the first wave of millennials are in their mid-30s, have families, and are settling down in the suburbs, there’s a lot of talk about whether the office sector will continue to thrive in urban settings or make a move out of the city. The truth is that transit-oriented suburbs with updated infrastructure have become a hotspot for office buildings, but the urban market is still where most of the action is. In fact, the only metropolitan areas that did experience a decline of 1,000 or more office jobs are Chicago, Greensboro/Winston-Salem, and Little Rock.
3. New York and San Francisco’s Markets will Stabilize in 2018
New York City and San Francisco have always been coveted property markets due to their lack of space and high concentration of residents. Historically, both of these markets have been faced with a supply-and-demand problem that sent investors looking elsewhere thanks to high prices and lack of development. But that’s expected to change in the following year as both cities’ vacancy rates increase to a healthy level, creating a rent growth rate that better reflects the national average.
4. Southern Cities are Growing
Charlotte, Fort Worth, Memphis, and Nashville are all lined up for various construction projects in the upcoming future. Furthermore, Atlanta and Charlotte are expected to do quite well over the next year, having both experienced significant rent increase and 1.3% job growth.
What to Take Away
The economy appears to be doing quite well overall. And since the country is enjoying a steady increase of job growth, there’s no reason why we shouldn’t expect for rents to experience a healthy increase while vacancy rates decline over time – even cities like San Francisco, where the vacancy rate is expected to hit 11%.