Greater Philadelphia Market Continued to Under-perform as Compared to other ICEE-dominated Markets and Lower-Cost Sun Belt and Midwestern Metro Areas
Colliers International just released the results of its 2014 Q3 North America Office Report, which shows that the tech and Sun Belt office markets are leading broad recovery, with U.S. and Canada real estate viewed as bright spots for global investment.
Key takeaways from this report include:
- The North American vacancy rate in Q3 2014 decreased by 21 basis points to 13.1 percent, with improvements in both the U.S. and Canada. The U.S. vacancy rate of 13.5 percent was the lowest since Q2 2008.
- Locally, improving hiring trends and tenant activity point to increased office demand in both the Philadelphia CBD and Suburban Markets during the fourth quarter.
- Indicative of the broadening economic and office market recoveries, just 15 of the 84 U.S. metro areas tracked by Colliers lost office-using jobs year over year in August 2014. Previous laggards such as Las Vegas, Los Angeles, Sacramento, Phoenix and Jacksonville were among the strongest markets for office-using job growth.
- Both the Philadelphia-Camden-Wilmington and Allentown-Bethlehem-Easton metro areas registered sub 1.0 percent office-using job growth.
- Lagging job growth and greater demand for space efficiencies and employee density have constrained occupancy growth.
- North American absorption of 17.8 million square feet (MSF) in Q3 2014 was the highest quarterly total this year, with both the U.S. and Canada posting positive absorption both in Q3 2014 and year-to-date.
- In a notable shift from recent quarters, absorption in the primary finance, insurance and real estate (FIRE) markets at 6.9 MSF nearly equaled the 7.9 MSF of absorption in the primary intellectual capital, energy and education (ICEE) markets. With the ICEE markets having led the current recovery, strong absorption in the FIRE markets indicates how much the recovery has broadened to include markets driven by more traditional office-using industries.
- The Greater Philadelphia market continued to under-perform as compared to other ICEE-dominated markets and lower-cost Sun Belt and Midwestern metro areas.
- Construction activity continued to tick up in Q3 2014 but remains highly concentrated in a small number of markets. More than 60% of the 110 MSF underway in North America is located in the top 10 metro areas.
- Locally, new development will be increasing with the full construction commencement of the Comcast Innovation and Technology Center and the FMC Tower at Cira South.
- Growth in foreign investment in North American office properties has been even stronger than overall investment growth. Year-to-date through October, cross-border investment into the U.S. and Canada totaled $17.9 billion, exceeding the full-year total for 2013 and reaching the highest level since 2007.
- Asian countries remain a major source of capital for U.S. office properties, with Hong Kong, South Korea, Singapore, China and Japan all ranking among the top countries for cross-border flows year-to-date.
- Locally, investment activity increased, and there has been more interest from out of market buyers.
For the complete 2014 Q3 North America Office Report, download here.
About the North America Q3 2014 Office Highlights Report
Colliers’ office space universe encompasses 87 markets in the U.S. and Canada, with a combined total of more than 6.4 billion square feet (BSF). The 75 U.S. markets account for most of this space, with nearly 6.0 BSF of tracked inventory and the remaining 449 MSF in Canada. Our coverage includes 21 markets with more than 100 MSF of space, with a combined total of 3.8 BSF or nearly 60 percent of our office market inventory.