Spurred by job growth, rising rental rates and falling office vacancies, developers in several major markets have begun to break ground on new office projects, pushing U.S. office space construction to its highest level since 2008, according to a new report.
Approximately 86 million square feet of higher-end office properties larger than 50,000 square feet were under construction in 2014, an increase of 25.7%, an analysis of CoStar Analytics data shows. This compares to 68.5 million square feet in 2013. It is the highest level the industry has seen since year-end 2008, when 105.7 million square feet of new U.S. office space was under construction, the report said.
The analysis also noted that the total square footage of new office construction for 2014 is expected to increase further as CoStar learns about additional new projects breaking ground this year.
CoStar anticipates 44.5 million square feet of office space to be delivered by December 31, 2014, up 22% from last year. As of September 30, new office construction starts totaled 42.6 million square feet, exceeding 2013’s total starts and providing ample new product into early 2017.
Analysts believe that recent robust leasing activity will alleviate any concerns about the potential for oversupply in the U.S. office space market. Of the U.S. office space currently under construction, only 45 percent remains available for lease. Major blocs of space already have been committed to by tech, creative and energy companies, such as such as Salesforce.com, Comcast, ConocoPhillips, Google, State Farm and LinkedIn.
Based on this year’s trends, CoStar predicts U.S. office tenants will take 77 million square feet of space by year’s end, up 77% from last year, and another 90 million square feet in 2015 and 2016.
With far less supply than demand, office vacancy rates are expected to decline until 2017, CoStar said. A projected low office vacancy rate of about 11% should be reached in 2016 with continued national job growth and the disappearance of shadow space.
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