Vacancy Rates Drop in Major US Office Markets

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Office vacancy rates declined in eight of the 13 largest U.S. markets during the third quarter, compared to the previous quarter, led by a strong demand from the professional services sector in Dallas' office market.

"Despite rising interest rates and continued weak growth overseas, the U.S. office market continued to benefit from slow but steady job growth and limited new office development, which has allowed moderate leasing demand to cut the supply of excess space," Brook Scott,  CBRE's interim head of research, Americas, said in the report.

The vacancy rate for office space in Dallas declined 100 basis points to 18.1 percent, driven by growth in insurance, IT and financial services firms among others, according to preliminary data from CBRE.

Professional services and healthcare resulted in a 40 bps drop in Phoenix and Washington, D.C., which recorded 23.5 percent and 14 percent vacancy rates, respectively. On the other hand, a few large blocks of office space became vacant in Boston, causing the largest increase in vacancy, at 50 bps, CBRE reports. 

The new data also shows improvement in the U.S. industrial market, which benefited from consumer and business spending, a recovering housing market and increased demand for logistics space tied to the growth of e-commerce during the third quarter. 

Industrial markets recorded quarter-over-quarter decreases in availability rates in five of the 12 markets followed by CBRE, while five markets remained unchanged from the previous quarter. Even though Boston's office market had a high vacancy rate, the city had the largest decline in availability rate for its logistics space, dropping 50 bps to 19.2 percent. 

It was followed by Dallas, which dropped 40 bps to 11.9 percent. Miami's industrial market had a vacancy rate of 8.1 percent during the third quarter, dropping 10 bps to maintain its third place spot among the top U.S. markets.  

"Miami's industrial market continues to be one of top three markets in the country as a result of our strong international trade ties and significant investment in South Florida's transportation infrastructure," Mary Jo Eaton, executive managing director, CBRE Florida, said in the release.  

Throughout the U.S. markets, an emerging theme was a shortage of Class A space. Design build activity remained strong while speculative constructions gained momentum, the firm reports. 

"In Chicago, there is currently 5.2 million square feet under construction, including 2.2 million square feet of speculative projects; in Dallas and Houston there is currently 10.1 and 7.8 million square feet of new construction underway, respectively," CBRE Reports.