2018 U.S. Arizona Office Market Q2 office remains on solid ground. Absorption rebounded in Q2 after a period of slow decline, rents have remained steady.
2018 U.S. and Arizona Office Market Q2 Absorption Rebounds as the Market Stays Strong
2018 U.S. Arizona Office Market Q2-The 2018 U.S. and Arizona office market in Q2 remains on solid ground. Absorption rebounded in Q2 2018 after a period of slow but steady decline, and rents and sales held firm. Office occupancy has remained near its cyclical peak for 10 successive quarters.
While the economy is currently very strong, job growth is not translating into increased occupancy. Tech-driven markets remain the principal exception, with large-scale leasing that is predominantly pure expansion. Coworking firms are the other main demand driver and are expanding aggressively in both major and leading secondary markets.
Despite a modest decline in Q2 2018, construction levels remain elevated. While we don’t see a widespread supply risk, as tenants continue to lease the best space, there are localized concerns. While declining on an annualized basis, office sales volume held firm in Q2 2018, while pricing and cap rates remain robust.
2018 U.S. and Arizona Office Market Q2 Key TakeAways from this Report
- Vacancy is still at historic lows: The U.S. office vacancy rate remained unchanged in Q2 2018 at 12% and has been essentially stable for 10 successive quarters. More than half of U.S. office markets (60% of total) have vacancy rates below the national average and 40% have sub-10% vacancy.
- Rents hold firm: Average U.S. office asking rates held steady in Q2 2018. There was a minimal quarterly growth of 0.5% in central business district (CBD) locations and 0.3% in suburban markets. Rent growth remains limited principally to tech-driven markets.
- Absorption rebounds: Office absorption more than doubled in Q2 2018 to 12 million square feet. This is encouraging but not exceptional by long-term averages. Tech-centric markets continue to see healthy leasing.
- Construction remains elevated: The amount of office space under construction fell marginally in Q2 2018 to 117.2 million square feet. This is still elevated by historical standards. Localized supply concerns are present, most notably in Los Angeles and Washington, D.C.
- Sales volume holds firm: U.S. office sales volume increased slightly in the second quarter to $28.6 billion. However, sales are down by 17% year over year. Fundamentals remain sound with pricing up slightly and cap rates holding firm.
- Looking Forward: Despite robust current economic and job growth, we anticipate conditions to slow moderately in the second half of 2018, causing office absorption and sales transactions to moderate as well, though overall market conditions will remain strong.