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Supply And Demand To Tip Scales In 2013 As Office Rents And Future Construction Prospects Increase In U.S. Skyline Markets

CHICAGO, March 6, 2013 /PRNewswire/ -- Constrained construction and heated demand for office space in the most active segments of the United States office market are already fueling prospects of rental increases and new office property development in 2013 and into 2014. An expansion period is approaching for the high-quality urbanized office sector of trophy skyscrapers known as the Skyline, according to Jones Lang LaSalle's Spring 2013 United States Skyline Review.

(Photo: http://photos.prnewswire.com/prnh/20130306/CL71719 )

"In all but a handful of the Skyline markets, large tenants will have few existing options to consider and thus will be forced to look at proposed development options if they desire to explore relocation options," said John Sikaitis, Senior Vice President of Research at Jones Lang LaSalle.

Jones Lang LaSalle Skyline markets set leasing, rent and investment

Jones Lang LaSalle's proprietary Skyline report identifies and tracks micro-segments of 34 city centers across the nation, including the Trophy and Class A buildings where tenants and investors alike have focused demand for office space in a flight to quality and efficiency throughout the recent recovery.

"These are the segments of the markets that always lead the rest of the office sector in trends of leasing, rent and ultimately investment growth," Sikaitis said. "The reason behind that is that these core micro-markets are increasingly where demographics are shifting and thus where tenants most want to be, allowing supply fundamentals to be tightest, giving investors the ability to capture tenants, grow rents, shrink yield and even construct new buildings."

Leasing highlights indicate Skyline markets will reach equilibrium by mid-2014

Vacancy rates are in the single digits in 10 Skyline markets, including Pittsburgh, Richmond, Bellevue, Houston, Portland, the New Jersey Hudson Waterfront, Raleigh, San Francisco, Philadelphia and Boston. Additions to supply are only beginning to appear, with office construction in eight, or 24.2 percent, of the Skyline markets, including speculative construction in three markets. By mid-2014, all of the Skyline markets will have reached equilibrium, where the balance of supply and demand has historically made rents pop and new construction feasible, Jones Lang LaSalle's researchers predict.

Three large office tenants that returned space to the market in 2012 skewed overall leasing totals across the Skyline, with a minimal net change from the previous year. Excluding those deals, however, Skyline absorption would have tipped the scales at more than 4.6 million square feet. Energy and tech companies will continue leading absorption in 2013, counterbalanced by right-sizing among law, financial and consulting firms that seek greater efficiency by cutting back space, typically between 15 percent and 20 percent.

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