Colliers: The Economy Still Has Some Legs
US office market fundamentals stayed strong in Q1, despite the early year market volatility, according to Colliers’ Q1 ’16 Office Market Outlook.
The national vacancy rate declined 10 bps during Q1 to 12.6%, 100 bps lower than last year, with 80% of metros seeing stable or dropping vacancy rates.
Colliers national director of office research Michael Roessle tells Bisnow that, while growth may not continue quite as robustly as the past two years, he expects vacancy to keep compressing and asking rents to continue climbing.
“There are no definite signs of an imminent downturn, in our view, despite a blip in the May job growth figures,” Michael tells us. “The economy still has some legs; there’s still enough steam in it.”
On the other hand, billionaire moguls like Sam Zell and George Soros have been predicting a recession for months now, and a model from Deutsche Bank puts the chances of a US recession in the next 12 months at 55%.
Office is not seeing any oncoming storm, especially in secondary markets, where Colliers sees the bulk of office growth going forward.
“Secondary markets, those 18-hour cities, are poised to have the most growth over the next five years,” Michael tells us. “Markets like Nashville, Raleigh, Portland, Indianapolis, Phoenix, Austin—and we’ve seen increased investment activity in these markets.”
Michael says as investors get priced out of the core markets and CBDs—which have a limited supply of available quality assets—they search for higher yields in these fast-growing markets.
That analysis matches up with a survey by ULI and PwC this year, in which eight of the top 10 cities voted most favorable for investment and development in 2016 are secondary/18-hour cities. (In order of interest to investors, those markets are DFW, Austin, Charlotte, Seattle, Atlanta, Denver, Nashville and Portland.)
“More and more of these cities are gaining a competitive edge by positioning themselves as vibrant, more affordable places to live and work, with amenities that appeal to different generations,” said ULI Global CEO Patrick Phillips.
