A report from Cushman & Wakefield tracked 87 markets and found that the office leasing rate increased 9.7% year-over-year in the fourth quarter of 2017 to a total of 312 million square feet.
The best performing markets were Manhattan, Dallas, Chicago, Houston and Los Angeles; but markets such as San Francisco, San Mateo, Seattle, San Jose and Nashville were the outliers for leasing relative to inventory, and tech was the driver.
“In comparatively smaller cities like San Francisco – where new leasing accounted for more than 8.7 msf of office space and represented 11.1% of that city’s total inventory, the highest of any U.S. market – tech remains king,” said Ken McCarthy, Principal Economist at Cushman & Wakefield. “The preliminary top leasing markets are a veritable who’s who of technology centers.”
Those markets where the tech sector is booming also showed the lowest vacancy rates. The Midtown South market in Manhattan led with a 6.9 percent vacancy rate, followed by Seattle (7.3%), Charlotte, N.C. (8.0%), and Raleigh/Durham, N.C. (8.1%).
“The cities in which new construction is likely to have the greatest impact are those with the largest volume of new construction relative to inventory,” said Revathi Greenwood, Head of Americas Research. “The cities at the greatest risk of overbuilding – which we define as those with the highest percentage of inventory under construction at the end of last year – include Brooklyn, San Francisco, Austin, San Mateo, Seattle, and Washington, D.C.”
Midtown Manhattan remais the most expensive market at $76.94 psf, followed by San Francisco at $71.02, Midtown South Manhattan at $68.87, Downtown Manhattan at $60.23 and San Mateo at $57.15.
Cities with a strong technology presence are outperforming in office leasing and vacancy absorption.