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Advantage Engineers..............................................10B American Architectural Window & Door.................1B Applied Bank...........................................................10A ARCO Design/Build.............................................. BC-A Arrow Steel..............................................................23B AW Meyer. ...............................................................17A Behr Building Services..............................................7B Berkadia.....................................................................9A Blue & Obrecht Realty, LLC / CORFAC Int’l.. ... IC-A Capitol Aerials...........................................................2B CCIM..........................................................................1C CenterPoint..........................................................IBC-C CORFAC International...........................................13C Crystal Window & Door..........................................15B CSI Cleaning Service.................................................3B Cushman & Wakefield NJ. .....................................17C Cushman & Wakefield. ...........................................14C E.B. Cohen.................................................................4B Earth Engineering, Inc.. .........................................17B Elliott-Lewis. .............................................................8B Environmental Systems............................................1A Equity Environmental Engineering.......................19B Foliage Design Systems. .........................................18B Fowler Companies...................................................28B Greater Reading Economic Partnership..................2C Green Partners........................................................22B GWS Environmental Contractors...........................13B Heller Industrial Parks...........................................12C Hillcrest Paving & Excavating...............................17A CARYL Communications........................................17A Integrated Business Systems. ..................................6B Investors Real Estate Agency.................................17A IREM.................................................................. 26-27B JRS Architect, PC....................................................14B Kaplin Stewart. .........................................................9C Kay Commercial Realty. .........................................17A LB Commercial Realty..............................................1A LEW Corporation. .....................................................2B M. Miller & Son.........................................................5B Marcus & Millichap.................................................17A Marcus & Millichap.............................................. BC-C Meridian Capital Group................................... 8A, 11C NAI Emory Hill. ........................................................3C NAI Mertz..................................................................8C NAI Summit...................................................... 17A, 4C Niles Bolton Associates...........................................12B NJAA........................................................................28B P. Cooper Roofing. ................................................ BC-B PernaFrederick..........................................................5C Poskanzer Skott Architects.....................................16B Premier Compaction Systems.................................24B RD Management.................................................... 6-7A Rittenhouse Realty Advisors. ...................................6C RSSC Architecture. .................................................11B Sheldon Gross Realty..............................................10C Sidney E. Gable Associates.......................................7C Sitar Auctions......................................................4, 12A Sorce Companies. .................................................. IC-C Specialty Building Systems. ................................. IC-B Stout & Caldwell. ....................................................20B SUBWAY....................................................................5A The Blau & Berg Company.....................................15C Total Cleaning Associates.........................................2B USGBC.....................................................................25B Weichert Commercial Brokerage............................17A MAREJ A dvertisers D irectory

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M id A tlantic R eal E state J ournal Publisher .................................................................Linda Christman Publisher ....................................................................Joe Christman Senior Editor/Graphic Artist ..................................... Karen Vachon Production Assistant/Graphic Artist ............................... Julie King Associate Publisher ....................................................... Kim Brunet Associate Publisher ................................................. Alissa Aronson Associate Publisher ...................................................Eric Ballenger Associate Publisher .............................................. Barbara Holyoke Associate Publisher .....................................................Steve Kelley Office Manager .........................................................Joanne Gavaza Contributing Columnist . .............................................Kevin Thorpe Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 312 Market St. Rockand, MA 02370 USPS #22-358 | Vol. 28 Issue 14 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal

Kevin Thorpe

U.S. Office Sector: Tenant Demand Showing Signs of Cooling

C

ushman & Wake- field announced to- day that tenant de-

mand for U.S. office space slowed in the first half of the year as businesses recalibrate and react to global economic uncertainty. Despite the de- celeration, vacancy remained steady, and rents jumped to the strongest growth rate in seven years. The U.S. office sector ab- sorbed 14.7 million s/f (msf) of space in the second quarter of 2016, up 24.9% from the levels observed in the prior quarter but down 36% from a year-ago. In the first half of 2016, net absorption was off by 34% from the strong levels registered in the first half of 2015. Despite the decelera- tion, tenant demand for office space kept pace with new construction. In the second quarter, the national office vacancy rate was unchanged from the prior quarter at 13.4%. The vacancy rate was down 50 basis points (bps) from a year ago and down 400 bps from the peak reached in mid-2010. Kevin Thorpe, Cushman & Wakefield’s chief economist, said the slowdown in the office sector is a function of growing economic uncertainty along with slowing U.S. job creation. “U.S. businesses have had many curveballs thrown at them this year – concerns over the health of China’s economy, equity market vola- tility, weak U.S. GDP growth, now Brexit – many reasons to at least tap the breaks on ex- pansion plans,” Thorpe said. “Moreover, at this maturing stage in the cycle, it is not uncommon to see job growth and absorption levels deceler- ate as the economy nears full employment. But overall, the office leasing fundamentals are holding up extremely well, and the secondary markets are really starting to hit their stride.” U.S. office rents increased 5.8% in the second quar-

ter compared to a year-ago to $29.00. Since reaching a mid-2011 low point, aver- age asking rents in the U.S. have increased by 18.0%. Of the 87 markets tracked by Cushman and Wakefield, asking rents increased in 67, declined in 19 and were un- changed in one market. The office construction pipeline continued to expand mod- estly. Approximately 13 msf of office space was added to the national inventory as a result of construction completions. Houston, Midtown Manhat- tan and Santa Clara each saw more than 1.0 msf of new office space enter the market. The amount of construction deliveries roughly matched total net absorption. “Outside of a handful of markets, the construction cycle continues to lag job creation,” said Kenneth Mc- Carthy, Cushman & Wake- field principal economist and applied research lead. “The upshot is that, nationally, the threat of overbuilding at this stage in the cycle is minimal. The downside is that many markets badly need the new space to relieve some of the pressure on rents.” The mar- kets with the highest share of inventory under construction include Nashville (9.4%), Se- attle (9.4%) Brooklyn (9.4%), Salt Lake City (6.4%) and San Francisco (6.2%). Regional Highlights: Ab s o r p t i o n : Mi d t own Manhattan saw the largest amount of space absorbed at 2.3 msf, followed by Chicago at 1.3 msf and Phoenix and Philadelphia, both at 1.0 msf. The remainder of the top 10

included Dallas/Fort Worth, 860,600 s/f; Detroit, 675,000 s/f; Austin, 653,800 s/f; Cen- tral New Jersey, 582,000 s/f; Miami, 538,000 s/f; and The Los Angeles Metro area, 514,300 s/f. On the downside, the largest amount of nega- tive absorption (space going back to the market) was in Santa Clara/Silicon Valley where negative 1.3 msf came back to the market, much of it in the form of sublease space. In all, of the 87 mar- kets tracked by Cushman and Wakefield, 65 experienced positive absorption. Vacancy : Vacancy fe l l slightly from the first quar- ter in the Northeast and Midwest, increased slightly in the South and remained unchanged in the West re- gion. Overall, vacancy rates fell in 54 markets and rose in 31. Markets with the largest vacancy rate declines from the first quarter to the second included Jacksonville with a 210 basis points (bps) decline; Inland Empire with a 180 bps decrease; and Long Island and Indianapolis, both dropping by 140 bps. In the second quarter, Nashville overtook San Francisco for having the lowest vacancy rate in the country at 5.8%. Rents: The strongest rent growth occurred in Silicon Valley, where asking rents rose 28.4% from year-earlier levels. Other significant rent growth occurred in SanMateo (17.9%), Seattle (16.3%), Dal- las/Fort Worth (14.3%), Puget Sound/Eastside (12.2%), San Francisco (9.3%), East Bay San Francisco (9.2%) and Miami (8.4%). n

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