Downtown Office Leasing Activity in U.S. Hits Four Year Highs

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According to Cushman & Wakefield's year-end statistics for the Central Business District (CBD) office market, office leasing in the U.S. hit a four-year high in 2011.

The square footage of new leases signed totaled 76.5 million square feet in 2011, up 17.4 percent from 65.2 million square feet signed in 2010, and the highest total since 2007.  Of the 30 U.S. CBD office markets tracked by Cushman & Wakefield, 21 reported an increase in new leases signed in 2011.  Chicago, Orange County and Downtown Manhattan experienced the greatest increase in leasing volume year-over-year.

"While there were certainly a significant number of large transactions signed in 2011, a great deal of this increase in leasing activity can be attributed to the sentiment of the market ," said Maria Sicola, executive managing director of Research for Cushman & Wakefield in the Americas. "We've hit bottom in a majority of cities in the U.S. and tenants took the initiative to either trade up or expand before rents increase substantially."

Absorption - which measures the net change in occupied space - totaled positive 12.9 million square feet in 2011, up significantly from positive 2.2 million square feet of absorption in 2010.

With no new office construction brought to market during the fourth quarter of the year, total construction completions for U.S. CBDs in 2011 totaled 4.3 million square feet - the lowest total since 1998, when 2.9 million square feet was completed.

Strong leasing activity and limited new construction put downward pressure on the U.S. CBD vacancy rate.  At year-end, the average vacancy rate declined to 13.5 percent, down 1.1 percent from the end of 2010, and the lowest vacancy rate in nearly three years.  Two-thirds of the CBDs tracked by Cushman & Wakefield reported a decline in vacancy year-over-year.

Rental rates continued to inch up, reaching $37.21 per square foot at year-end, up 2.0 percent from $36.49 per square foot at the end of 2010.