10 Office Markets With The Highest Annual Rent Gains

National office markets finished out last year strong, with the national vacancy rate dropping below 13% for the first time during this cycle. That’s according to CBRE’s head of office research in the Americas, Andrea Cross, who said she expects 2017 to be a strong year as well, despite the slight decline in office-using job gains as the labor market tightens.

Below are the 10 markets that had the highest annual rent growth from Q4 2015 to Q4 2016.

Oakland (CBD)

Q4 2015 Rent: $43.44/SF

Q4 2016 Rent: $52.56/SF

Growth: 20.9%

Both Oakland’s downtown and suburbs ranked within the top 10 markets in the country. Oakland has grown into one of the hottest office markets in the Bay Area, benefiting from rapid tech industry growth from San Francisco and the Silicon Valley. 

Dallas-Fort Worth

Q4 2015 Rent: $21.98/SF

Q4 2016 Rent: $25.97/SF

Growth: 18.1%

Dallas’ CBD rent growth is being propelled by Class-A inventory within the Arts District. Take KPMG Plaza, for example. Completed in 2015, it was the only new delivery in the market this cycle and it is quoting the highest average rental rates in the submarket, which has been driving up rent growth.

Nashville

Q4 2015 Rent: $19.78/SF

Q4 2016 Rent: $22.99/SF

Growth: 16.2%

Nashville’s office market remained extremely tight last year, with its suburban vacancy rate — 4.7% — ranking second-lowest among the markets CBRE tracks. Cross said though there is roughly 3.7M SF of new construction underway within the metro, most of the space is pre-leased, meaning vacancies will likely remain within the single digits over the next couple of years, while rents continue to rise. 

“The lifestyle [in Nashville] kind of has the cool factor similar to a market like Austin or Portland. And from a company perspective it has lower costs [compared] to a lot of the markets in the Northeast so there’s been migration of tenants into Nashville, along with other markets in the South and the West.”

Austin

Q4 2015 Rent: $41.33/SF

Q4 2016 Rent: $47.67/SF

Growth: 15.3%

Tech expansion has been the driving factor behind Austin’s high rents, keeping vacancies below 10% with both local tech tenants and firms migrating from Silicon Valley expanding into Austin. Cross said Austin is generally cheaper than the Bay Area, but as of late rents have been creeping up, and Austin’s average $47.67/SF is nearing Oakland’s $52.56/SF.

Detroit

Q4 2015 Rent: $18.05/SF

Q4 2016 Rent: $20.38/SF

Growth: 12.9%

Much of the growth in Detroit is being driven by investment from billionaire Dan Gilbert and his real estate company, Bedrock Detroit. “Bedrock has been renovating and retrofitting a lot of properties over the last couple of years, which is benefiting and fueling demand," Cross said. "Supply is quite low in Downtown now, the Class-A vacancy rate is just above 6%, so as companies continue to relocate into [the] CBD in order to attract talent it’s been driving up rents."

San Jose

Q4 2015 Rent: $38.85/SF

Q4 2016 Rent: $43.68/SF

Growth: 12.4%

Recent residential and retail development in what is considered the downtown of Silicon Valley is driving growth in San Jose, which is attracting companies to the area. New demand from tech companies is also flowing into the city center from Silicon Valley, boosting rents.

Cambridge

Q4 2015 Rent: $58.34/SF

Q4 2016 Rent: $65.26/SF

Growth: 11.8%

Cambridge is the tightest office market in the country that CBRE tracks, Cross said, with a vacancy rate of 3.8% in Q4. “There’s basically no space available, and we’re actually seeing examples of tenants trying to get other tenants to move so they can expand," she said. "There’s also been a lot of demand from lab tenants who are looking for space for their lab facilities, so it’s an incredibly tight market and rents continue to rise."

Fort Lauderdale

Q4 2015 Rent: $35.50/SF

Q4 2016 Rent: $39.59/SF

Growth: 11.5%

This office market continues to see rising rents and drops in vacancy as much of the new construction and development is focused on multifamily. Builders find they are able to get higher yields building multifamily than office buildings in this market, so there has been very little to no office supply coming online, causing the market to tighten and get more expensive.

Oakland (suburbs)

Q4 2015 Rent: $30.48/SF

Q4 2016 Rent: $33.96/SF

Growth: 11.4%

As both traditional and tech firms compete for space in Oakland and the Bay Area in general, the city’s downtown and suburban office markets ranked within the top 10 in the country with the lowest vacancy rates.

Salt Lake City

Q4 2015 Rent: $21.60/SF

Q4 2016 Rent: $23.86/SF

Growth: 10.4%

This market’s rising rents in Q4 were greatly driven by a new building that came online last year, 111 Main, which is commanding the highest prices in the market. Much of the space has already been pre-leased, and the remaining availability is pushing up rents in the market. Salt Lake City has been a strong market throughout this cycle, Cross said, with job growth really fueling the market both downtown and within the suburbs.