Expansionary leasing is driving supply constraints as tenants await 2016 deliveries [REPORT]

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With the economy growing at its fastest pace in the current cycle, employers across industries are adding jobs, especially in urban and dense markets where talent is migrating. As a result, expansionary activity remained the dominant driver of leasing in the third quarter, accounting for 57.9 percent of lease transactions.

This growth has left primary markets challenged by significant supply constraints, creating a competitive environment for tenants, with higher costs and fewer options. However, secondary and tertiary markets like Charlotte, Phoenix, Portland and Salt Lake City are benefitting from economic expansion and investment activity. New supply coming online in 2016 will help to relieve supply pressures and may temper rental rate growth as landlords compete to fill vacancies.

Despite economic concerns of an impending interest rate hike, as well as China’s faltering economy, tenants and investors alike remain optimistic about the U.S. economic and office market climates.

Key highlights

  • Leasing activity dipped by 3.1 percent to 62.3 million square feet; however, expansionary activity represented 57.9 percent of lease transactions—the fifth straight quarter in which the majority of activity was expansionary.
  • Vacancy fell by 20 basis points from last quarter to reach 15.1 percent, an 80 basis point decline from 12 months ago.
  • The development pipeline grew by 8.5 million square feet during the third quarter and 16.3 percent since the end of 2014 to a total of 92.8 million square feet.
  • Rental rates across the U.S. have increased by a cumulative 4.3 percent increase since the beginning of 2015, and will be the highest annualized rent gain recorded so far in this cycle.
  • Where new supply came online during the quarter, markets saw rates increase with rent premiums as much as 47.0 percent higher than market rates.

Download your copy of the Q3 2015 U.S. Office Outlook for a complete market review.

LinkedIn post: With the U.S. economy growing at its fastest pace in the current cycle during the third quarter, office rental rates continue to rise – especially in CBDs – while vacancies continue to fall. And with supply constrained across many urban and some suburban markets, owners are thinking more and more about repositioning dated and obsolete product to meet the growing demand. Get in-depth analysis of these trends and more in JLL’s new 3Q Office Outlook. Share on LinkedIn

Tweet this: Steady Q3 economic growth pushes #US #office #rents up especially in CBDs and vacancies down #CRE #JLLResearch. http://ctt.ec/07uac

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