Big cities drag down U.S. office market

Thanks to poor performances in some of its largest cities, the United States office leasing market had a slow first quarter, according to a national office market report released today by Jones Lang LaSalle.

Just about 1 million square feet of office space was absorbed nationwide in the first quarter, well below the 8.6 million square feet averaged over the previous six quarters. Net absorption fell by 2.2 million square feet in New York, Chicago and Washington D.C., with the latter recording 1.47 million square feet of negative absorption. Further, leasing activity in New York and Washington D.C. fell 43 percent quarter-over-quarter, the report says.

“The recovery slowed during the quarter,” John Sikaitis, JLL’s senior vice president of research, said. “Overall rents across most markets will grow, but at slow and measured paces unless some significant cushion of technology or energy pockets exist.”

South Florida’s three counties performed well in the first quarter, combining for about 83,000 square feet of net absorption, with Fort Lauderdale leading the way at 47,619 square feet. As a whole, the state’s six office markets registered almost 400,000 square feet of net absorption.

However, that was driven by lower rents. Miami office rents fell 2.4 percent to $35.47, West Palm Beach rents dropped 2.2 percent to $30.86 while Fort Lauderdale rents gained a negligible 0.1 percent to reach $31.43. Further, all three markets maintain vacancy rates between 22.6 and 23.2 percent, nearly 65 percent higher than the national 14 percent average.

While the national office market was light on deals, there was expanded activity as tour velocity increased in 57.8 percent of markets.

Investment activity was mostly stable across the country, but more new product is on the weight as construction activity has increased 86.2 percent in the last six months. About 33.7 million square feet is on the verge of being delivered nationwide, with about 345,000 square feet arriving in South Florida. — Adam Fusfeld