The U.S. office market continued to benefit from strong fundamentals going into 2018, despite continued deceleration in net absorption, occupancy, and rental rate growth.
With robust corporate profits and continued office-use job growth, that trend is expected to hold through the year as the recently approved tax cuts and expected gradual increases in interest rates make the nation’s commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – an attractive place for investors to park capital and get cash flow.
“You’re going to like GDP growth over the next few months,” CoStar Portfolio Strategy’s Hans Nordby said during CoStar’s year-end 2017 State of the U.S. Office Market report, co-presented with managing consultant Paul Leonard. “Corporate profit growth is a good story, and if you already think it’s strong, look underneath the hood. It’s even better.”
This CoStar report on the national office space market is being offered through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
The improved profit growth outlook for the services sector and other industries in the U.S. and Philadelphia commercial real estate markets that drive office demand, along with expected higher GDP growth projected at a very strong 2.5% to 3% in the next few months, should help office job growth hold steady at strong levels for the next few month, Nordby said.
The vacancy rate among national and Philadelphia commercial real estate listings held steady at 10.1% at the end of the fourth quarter 2017, unchanged from the same period a year prior, despite a large amount of new supply and a 20% decline in office net absorption to 65 million square feet for 2017.
Meanwhile, the total amount of office property acquired by investors declined about 15% in 2017 from the prior year, largely due to a sharp drop in office trades in New York City and the rest of the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space.
Despite the declining sales volume, average prices in primary markets continued to rise, prompting investors to fan out into secondary markets such as suburban Phoenix, where Transwestern Investment Group and JDM Partners acquired Marina Heights, State Farm’s office campus in Tempe, AZ, for $930 million at $459 per square foot.
Leonard, however, sees the national office vacancy rate within both U.S. and Philadelphia commercial real estate listings ticking up beginning this year through 2020 as the expected new supply of space finally begins to outpace demand.
For more information about Philly office space, Philly retail space and Philly industrial space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space, Philly retail space and Philly industrial space.
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