Jun
02

Reis: Office Market Fundamentals Remain Sound

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office-space for leaseMuch has been said about the multifamily market driving home solid earnings over the past few years as millennials and others have eschewed the housing market, preferring to rent longer than in times past. Apartment-rent growth has been good to investors.

The assessment of the office market, on the other hand, has been less sanguine because demand has not grown in line with employment growth. By this stage in the last recovery, the quarterly rent-growth rate in the nation’s office market exceeded 2 percent. By contrast, in the current recovery, the quarterly rent-growth rate has barely topped 1 percent, which was in fourth-quarter 2014.

Yet we just crossed the 22nd straight quarter of rent growth in first-quarter 2016. This is remarkable. The last recovery cycle only lasted 17 quarters before rent growth turned negative.

The cumulative rate of growth in the current cycle is only 12.5 percent, much lower than the 24 percent cumulative growth rate of the previous cycle. This, however, has as much to do with how low rents had fallen prior to the last up-cycle (after the dotcom bust of the early 2000s), as compared to the tepid declines in 2008-10.

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