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U.S. office property sales volume rose by 39% in the first three months of 2015 over the same period last year, pulling nearly even with multifamily for the largest share of sales among the five major commercial property types during a quarter that logged the highest aggregate transaction volume to begin a year since early 2007, before the most recent recession leveled property values.
The preliminary $33.5 billion in total office sales during the first quarter, typically a slower seasonal sales period for commercial real estatedeals, surpassed first-quarter 2014’s $24.1 billion for a strong start to 2015 expected to continue in coming quarters.
“That is an exceptional number, and we see a significant amount of office sales teed up to come through the system,” said CoStar Director of Office Research Walter Page, who joined Vice President and Research Director Dean Violagis and Director of Advisory Services Michael Cohen in presenting the first-quarter data during CoStar’s State of the U.S. Office Market First Quarter Review and Forecast.
The preliminary $126.3 billion in total office, apartment, industrial, retail and hospitality sales in first-quarter 2015 verified by CoStar as of April 22, the highest since the first quarter of 2007, represents a 47% increase over the first quarter of last year’s $86 million, added Violagis.
A larger-than-expected slowdown in net absorption of office space from 33 million square feet nationally in an exceptionally busy fourth-quarter 2014 to 12 million square feet in the first quarter was the only sour note in a quarter that in addition to brisk sales transaction activity, recorded the highest quarterly rent growth thus far in the current recovery at 3.8%.
The booming market of Houston logged 1.7 million square feet of absorption in the first quarter, compared with 2.7 million square feet a year ago. But more than 1 million square feet of last quarter’s total was the expected move-in by ExxonMobil into its new office campus, among other leases signed prior to the plunge in oil prices. Factoring out the ExxonMobil move-in, Houston may have experienced negative net absorption, Page said, while also noting demand slowing first quarter leasing activity in Phoenix and Atlanta.
The drop in net absorption nationally kept the U.S. office vacancy rate at a flat 11.3% in the first quarter, still down significantly from the same period a year ago and near the long-term average of 11.2%.
With job growth and other economic indicators expected to climb out of the winter doldrums, Page and other CoStar analysts expect to see continuing compression in vacancy rates through the end of 2016 as demand picks up in the remaining three quarters of the year.
“Our forecast for total U.S. net absorption in the 80-90 million square feet range by the end of the year, which would be very similar to 2014’s total,” Page said.
