Despite a slow recovery, the office sector sees regional opportunities

A demand for more high-tech, efficient work places is driving office demand despite overall sluggish growth in new construction.

Even though, historically, construction levels in the office sector are low, many commercial real estate construction companies are seeing pockets of promise.

The National Real Estate Investor recently reported an estimated 58.9 million square feet of new office projects in the U.S. – a figure that is inclusive of the medical office and build-to-suit segments. In comparison, 2008 saw about twice as much activity, according to Colliers International.

"It is still a relatively tough business right now, but development is picking up," said Dennis Oklak, chairman and CEO of Duke Realty.

According to Bill Cawley, of D Real Estate Daily, employers are seeking more intelligent spaces. Close proximity to public transportation and Wi-Fi powered work spaces are among the emerging trends. Overall, there is a greater emphasis on LEED-certified buildings in a location that enables greater flexibility for employees who prize work-life balance. Many companies find that providing this kind of office environment is key to retaining talent.

Attractive markets for office development
The national office research manager for Colliers International, Andrea Cross, says that Houston, Tex., – of all the markets – is poised for the most growth. The reason? Cross says that energy companies, in particular the oil and gas industry, are mostly responsible for the increased demand for new office space, the 14 percent vacancy rate not withstanding.

"They want newer, LEED-certified buildings to attract talent and have more efficient spaces," Cross told NREI.

In the first quarter of 2013, there was approximately 9.3 million square feet of office space under construction in the Houston area. Almost one-third of that stems from Exxon Mobile's new employee campus project, expected to contain 3 million square feet.

A similar boom is happening within the tech industry in California markets like San Jose and San Francisco. Growth in the office sector is expected to inch along as the economy improves. Absorption of office space, however, took a sharp drop during the first quarter due to government spending cuts and their impact. Compared to a robust fourth quarter that saw 23 million square feet, the first quarter of 2013 only saw 4.5 million square feet of absorption, according to a Cassidy Turley report.

"I think you are going to see limited speculative construction for the remainder of this year," said Oklak. "Again with the exception of a couple of markets like a Houston and Raleigh."

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