Quality Space Leads Demand

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By Walter Bialas

While office absorption has slowed from its frenzied pace in 2014 and 2015, it is still running well above our long-term annual average of around 1.5 million square feet. At the start of 2016, we took a shot and estimated that we would be around a 2 million square feet this year. With 1.5 million square feet of Class A and B in the books through 3Q, that still looks like a good number.

The important story here is that net absorption has been taking place in mostly Class A – and a large share of that is in the projects that have recently delivered. The reason this is key is that rents have been rising fast and, at this stage in the cycle, tenants continue to opt for the better quality space despite higher rents (on average, up 23% since year-end 2012).

The driver here is tenants want the best space in well-amenitized buildings and in walkable neighborhoods that offer ample restaurant and shopping options. This drive toward Class A is becoming almost mandatory as tenants want to create a corporate culture that allows them to recruit and retain talent in today’s very competitive workforce.

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