Office sector experiences improvement in Q1

Office market conditions are gaining steam.

Interest in office space continued to improve during the first three months of the year, despite levels not being as strong as the fourth quarter of 2012.

Office absorption reached 3 million square feet during the first quarter, a report from Cassidy Turley explained. This was still much lower than the 23 million square feet of space during the previous three-month period, as well as the lowest level of net absorption since the recession ended.

Fundamentals spur office market growth
Despite this, the increase helped the market experience its third straight year of gains in the category, the report noted. The vacancy level for the market did not change, and was 15.4 percent during the quarter.

"Market fundamentals continue to improve, but at the same time, the office sector is clearly going through a transformation," said Kevin Thorpe, chief economist at Cassidy Turley. "Many businesses are reassessing space needs and recognizing they can function perfectly well with a smaller, more efficient footprint. As a result, job growth is not giving us the same pop in demand that we have grown accustomed to."

The strongest market in the country for demand was Dallas, the report explained. The city had approximately 728,000 square feet of net absorption. The second most was Tampa, which had 613,000 square feet and Boston rounded out the top three with 610,000 square feet. Denver, Minneapolis and Northern New Jersey were all higher than 400,000 square feet.

The highest performer for rent growth during the first quarter was New York City, which improved 11 percent compared to the first three months of 2012, the report added. Salt Lake City was only slightly lower, while the San Jose/Silicon Valley area had a rent growth rate of more than 10 percent.

Commercial mortgages perform well in 2012
While the office sector continues to improve, there was also notable gains in the commercial mortgage market. Overall loans had a return of more than 4.5 percent, according to the Gilberto-Levy Commercial Performance Index, cited by Commercial Property Executive.There were more than $25 billion in commercial mortgage originations through institutional lenders during the year, as well.

Office mortgages had more than one-quarter of the market share last year, the report added. Industrial loans had nearly 13 percent and apartments had 20 percent during the same period.

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