U.S. office markets logged strong performance in the third quarter, with stable leasing volumes and absorption, rising asking rents and increased new construction, according to global commercial real estate services provider Cushman & Wakefield PLC.
Demand remained high during the quarter, especially in the tech sector, and the firm expects that momentum to carry over into 2019. Third-quarter net absorption fell to 8.3 million square feet, from 15.2 million square feet in the second quarter, while the national vacancy rate dropped to 13.3% from 13.4%.
Tech companies accounted for approximately 27% of large office leases in the quarter, while financial services companies represented 17% of the top leases. Tech-driven markets continue to be the "tightest'" major markets in the U.S., led by San Francisco with a 6.8% vacancy rate.
The pace of new leasing in the quarter was recorded at 71.8 million square feet, the slowest pace in almost two years, with the western markets accounting for 37.6% of new leases in the first three quarters of 2018 nationally. While the pace of new construction increased, the volume of new space completed in the quarter slowed to 9.7 million square feet.
Office rents rose in 63 of the 87 markets tracked by Cushman & Wakefield during the quarter, with average asking rents growing 1.2% quarter over quarter. Rents in Orange County, Calif., rose 17.2% year over year, the fastest rent growth in the major markets.
Cushman & Wakefield said it is tracking about 114.0 million square feet of space under construction, up from 107.6 million square feet in the second quarter and the largest volume the firm has ever recorded. Midtown Manhattan, N.Y., has 15.9 million square feet under construction, the highest volume.