U.S. businesses expanded into more office space in 2014 than in the eight years prior, according to a new report by DTZ.
Many experts, including DTZ's chief economist for the Americas, Kevin Thorpe, saw the office sector as one of the slowest real estate sectors to recover. Thorpe says job growth is now fueling stronger occupancy gains.
The report also found that rent rates increased in 70 percent of U.S. cities. In 2014, U.S. markets absorbed a total of 70.2 mllion square feet of office space, marking the highest demand since 2006.
The national vacancy rates dropped as well. About 61 percent of the 80 metro areas tracked by DTZ reported fourth-quarter gains in filling office space.
“If one annualizes the second half of 2014, the office sector has been absorbing space at nearly twice its historical average,” Thorpe said, in a statement. “For most of this recovery, shifts towards space efficiency – lower square feet per worker – dampened aggregate demand, but robust job creation has taken over as the dominant force. Fundamentals still vary greatly by location, but the latest demand metrics can no longer be characterized as subpar. This is robust.”
He adds, “Economic fundamentals are increasingly compelling for developers to move forward with new projects. With real GDP growth nearly touching 5%, job creation at a 15-year high, lower gas prices, low interest rates, and rising business and consumer confidence, there is little to suggest that leasing fundamentals will not continue to tighten in most markets in 2015.”
The West saw the highest increase in net absorption, up 89 percent from 2013, while the Midwest -- which is composed of Nebraska, Kansas, Missouri, Iowa, Illinois, Indiana, Michigan, Ohio, Minnesota and the Dakotas -- only saw an average net absorption gain of 1.2 percent in 2014.