The U.S. office market performed well in the second quarter of 2019, as the vacancy rate declined significantly year-over-year and the construction pipeline hit the highest peak of the cycle with 97.2 million square feet, according to Newmark Knight Frank’s most recent report on the U.S. office market.
Between April and June 2019, office tenants absorbed 10.2 million square feet across the country, an increase from 9.3 million square feet during the second quarter of 2018. Absorption was positive in 42 of the 56 markets tracked by NKF, with Seattle leading the pack, surpassing 1.8 million square feet. San Francisco and Manhattan both registered 1 million square feet of occupancy gains.
Office asking rents have been slowing since hitting a peak of 3.8 percent in the fourth quarter of 2015, but that number increased in the second quarter of 2019, up 3.2 percent over the past year, according to the report. The cities of Raleigh-Durham and Boston experienced significant office rent growth over the past year, with 8.4 and 8.3 percent increases, respectively.
Largest leases, notable trades
In the second quarter of 2019, the top five lease transactions took place in two cities: New York and Boston. The top lease was Time Warner’s 1.5 million-square-foot deal for 500 W. 33rd St., followed by Bank of America’s 499,158-square-foot lease at 100 Federal St. On the sales side, Boston took the top deal with the $1.1 billion trade of 610 Main Street North in Cambridge, Mass., a 677,000-square-foot property that sold for $1,654 per square foot.
Of the metros tracked in the report, one that had the most notable performances was Charlotte, N.C., one of the fastest-growing cities in the country. The office market in the southern city has grown considerably over the past five years, with a current inventory of 70.8 million square feet, per data from the report. As a result of a quickly tightening market, asking office rents shot up 34 percent from the second quarter of 2014 to the second quarter of 2019.
The city’s banking industry, which it has long been known for, has been acting as a catalyst for growth. Approximately 1.6 million square feet of office space is currently under construction, including the Bank of America tower being developed at the Legacy Union project in Uptown and the Ally Charlotte Center, which is slated to open in 2021.