U.S. office vacancies across the major metro areas reached 11.5 percent in December, the lowest rate reported in a decade, due to cautious development and healthy absorption, according to Transwestern's newly released 2017 year-end report on the national office market. Significant net absorption in markets such as Dallas/Fort Worth; San Jose/Silicon Valley; Seattle; Northern Virginia; and Austin, Texas, contributed to this decline in vacancy, as did a deceleration in new construction starts during the fourth quarter.
Many markets across the U.S. have benefited from high demand pushing office rents to record levels. However, experts say uncertainty surrounding Brexit and the upcoming election turmoil may cause tenants to delay expansion decisions until 2017. Real estate services firm Savills Studley recently released a global prime office market ranking by occupancy costs, and six U.S. cities are listed in the top 20. For the most part, office property fundamentals remain as solid as they were in mid-2015, according to Pat McGrath, senior managing director at Savills. Vacancy continues to drop nationwide, and most cities are still benefitting from pent-up demand for space. Lending on new projects remains controlled. However, going toward 2017, the national outlook is starting to look choppy, McGrath notes. “If I was going to bet as a tenant, if I was being pitched a lease restructuring in the threat of future increases, I’d probably wait,” he says. “Unless a firm is looking to repurpose their offices to gain new talent, I’d wait. I think you’re going to start seeing an increase in concessions.”
Once again, New Jersey and Illinois ranked as the two worst states in the country when it comes to property taxes, according to a new survey from personal finance website WalletHub. In order to identify the states with the highest and lowest property taxes, WalletHub’s analysts compared the 50 states and the District of Columbia using U.S. Census Bureau data to determine real-estate property tax rates. While property taxes vary from county to county across the state, WalletHub divided the “median real-estate tax payment” by the “median home price” in each state to determine the property tax rate.
The hotel building boom continues in the U.S., as a total of 103,230 rooms within 865 hotels are currently under construction and scheduled to open through the course of 2016, according to hotel research firm STR. The industry continues to break records on both the demand and revenue side, and developers are boosting investments to keep up with the surging demand. The 1.5% uptick in rooms opening this year is still below the long-term annual average of 1.9%, says Jan Freitag, STR’s senior vice president of lodging insights. But building activity has dramatically increased, with 21% more rooms under construction than a year ago.
As apartment rents continue to skyrocket in many city and towns across the country, more and more jurisdictions are adopting inclusionary housing programs in order to provide at least a few affordable apartments for low- and moderate-income families. Inclusionary housing policies require developers to include affordable housing when they build in the desirable places targeted by the programs, such as bustling central business districts or towns and neighborhoods served by mass transit. Hundreds of jurisdictions throughout the U.S. now have inclusionary zoning laws in place—most adopted within the past 10 years, according to a September 2015 report from the Lincoln Institute of Land Policy. The programs include 512 inclusionary housing programs in 487 local jurisdictions in 27 states and the District of Columbia. Nearly two-thirds of these are concentrated in New Jersey and California.
The future is looking positive for the Washington, D.C. office sector as development slows, the economy improves, and millenials move into the city. Office leasing skyrocketed between 2009 and 2006 thanks in large part to the formation of the Department of Homeland Security. But unfortunately, the recession brought government cutbacks, layoffs and consolidation at the same time suburban developments were completed, and the market began to suffer greatly. Today, the vacancy rate for the entire Washington D.C. region is more than 17 percent, with much of the emptiness due to vacated space in the suburbs. Nearer the capital, the vacancy rate is about 11 percent, and the unemployment rate is at 7.8 percent, significantly higher than the national average of 5.5 percent, according to the U.S. Bureau of Labor Statistics.
Thanks to a renewed flow of equity capital and low-cost debt financing, new U.S. hotel development is no longer on hold. Los Angeles and New York are being especially favored for new development by investors, as both are experiencing an unprecedented amount of liquidity and have become hot beds for acquisition, development and redevelopment.
Many commercial property owners suffered from sticker shock last year when the District changed its assessment methodology of office buildings and apartment buildings, basing assessments on pools rather than individual building data such as vacancy and rental rates. Many tax property owners have yet to experience any relief, as the 2016 assessment notices issued earlier this month were still based on financial information that is more than a year old and likely does not reflect the true value for office buildings and their current vacancy rates. This is largely due to the fact that property owners are not required to submit income and expense data for their buildings until April 15, meaning assessors are working off 2013 income and expense information.
The Washington D.C. Economic Partnership (WDCEP) released its 2014/2015 Development Report this week, an annual collection of data providing key insights and highlights of D.C.'s major projects and upcoming development plans in the city. More than 100 developers, architects, contractors and economic development organizations contributed to the unbiased annual "development consensus," and this year's report contains both good and bad signals for the District. For the past three years, WDCEP has partnered with CBRE, a global real estate services and investment firm, to provide this economic overview of DC and in-depth analysis of the office, retail, hospitality, education, and residential markets. Despite a weakness in the local economy, the report found that the District is well-positioned for renewed growth and expansion, and there has been particular growth in the construction, retail, leisure, and hospitality sectors over the last five years.
Energy benchmarking for large commercial buildings is fast becoming U.S. law. According to The International Council of Shopping Centers (ICSC), ten cities — Austin, Texas; Boston; Cambridge, Mass.; Chicago; Minneapolis; New York City; Philadelphia; San Francisco; Seattle; and Washington, D.C. — have enacted energy-benchmarking requirements, as have the states of California and Washington. This year Montgomery County, Md., became the first county to pass such a law, mandating a benchmark deadline of Dec. 1, 2016, for private buildings measuring at least 250,000 square feet and a deadline one year later for those measuring at least 50,000 square feet.