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Commercial Real Estate

Office markets performance improving, could a recovery be pending?

Who is occupying the most office space?

According to CoStar Group, financial services, insurance and real estate companies account for roughly 22% of of all U.S. office space occupancies, the largest segment in all of the office sector with service companies (including technology) taking the second spot at 14%.

As office spaces are being leased in larger quantities, some point to a recovery in the office sector of commercial real estate. From April to June, the U.S. office market gained 3.7 million square feet of net occupied space, according to Reis, Inc. making it the third quarter to experience an increase.

Regional drivers

Only 10% of the largest office markets saw any drop in vacancies, Reis reports. Analysts point to technology startup companies as making the biggest moves in office space in several parts of the nation, leasing larger spaces, helping increase effective rents.

Last quarter, effective rents rose in 60% of the top 10 markets with San Francisco rising at the highest rate, seeing a 6% increase year over year, according to Reis.

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“Northern California in the last six months has shown tremendous strength,” Frank Cohen, a senior managing director in real estate for Blackstone Group said. Further, Cohen noted, “In markets that have had the most growth, we’ve seen blocks of space dwindle, and we are seeing strong increases in rent.”

New York, Boston, and San Jose, Calif., also were among the top 10 markets in effective rent growth in the second quarter, Reis research revealed. Cohen pointed to financial services and media as driving the New York market while life science and technology driving Boston and technology as the primary driver in Austin.

Historic lows

Reis began studying the market 12 years ago, and since they began, last quarter’s 1.8 million square feet of new space that became available was the lowest quarterly rate in Reis’ reporting.

Some are pointing to a recovery in the office sector while much of the rest of the commercial real estate sector limps along behind it.

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Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

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