SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Office Markets to Watch. Not the largest or the most actively contested markets, the 2016 Office Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.
Top Office Market to Watch: San Francisco, CA
San Francisco remains one of the hottest office markets in North America, led by booms in the tech industry that are seeking urban locations over sprawling campus sites. As such, the Bay Area has some of the highest rents and lowest vacancies and this trend is not forecast to reverse anytime soon. The overall economy is very healthy for the size of this metro, with unemployment at 3.9% as of January ‘16, according to the Bureau of Labor Statistics. Office-using sectors are some of the fastest growing, with Professional and Business Services, Information, and Financial Activities growing at 5.4%, 4.8%, and 1.3% annualized rates, respectively. Affordability of office space, as well as overall cost of living and operating, are the biggest impediments to sustained growth; thus, expect the suburbs to grow and urbanize at increasing rates as well.
Stay Updated…
Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.
To read more on other top office markets, download the full version of the 2016 Office Market Outlook report here.
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SVNIC’s 2016 
Minneapolis remains one of the strongest and most stable economies in the nation with 3.9% unemployment in January ‘16, according to the Bureau of Labor Statistics. The metro area has steadily gained total employment while only experiencing a modest decline during the past recession. The key office-using sectors are fairly stable with modest growth as Financial Activities and Professional and Business Services gain jobs at 1.6% and 0.9% annualized rates, respectively, while Information remains mostly flat at –0.3%. Given that Minneapolis is repeatedly cited as a good place to do business, its office market is likely to maintain stability and grow in 2016 and beyond. Further, Minneapolis is experiencing a long-term trend of re-urbanization, meaning that the CBD is likely to perform well for the extended horizon.
Houston is the hub of oil and energy production in the United States and, as such, is uniquely susceptible to the recent oil price declines that appear to have near-term persistence. It is likely that the office market in Houston will experience some pain in 2016 and beyond on a relative basis. Declines are already being felt in key office sectors with Information and Professional and Business Services declining at -2.5% and -1.8% annualized rates, respectively; however, Financial Activities is growing at 2.0% and thus should balance some of the negative effects. Overall, the Houston economy is actually fairly healthy with a 4.8% unemployment rate as of January ‘16 which has stayed near constant for much of 2015; thus, fears of the oil price declines may be overblown.
Ft. Lauderdale has experienced significant recovery from the recession but still remains below pre-recession peaks in both total employment and lows in the unemployment rate. Still, the economy is quite healthy with a 4.7% unemployment measure as of January ‘16, according to the Bureau of Labor Statistics. As part of a multi-metro region, Ft. Lauderdale offers relatively lower office rents and higher occupancies, as well as an overall lower regional cost of living (especially compared to Miami) and thus is a rational place to grow and expand a business. Key office sectors are displaying strength with Financial Activities, Professional and Business Services, and Information all markedly positive with annualized growth rates of 4.5%, 4.3%, and 2.1%, respectively. The office market of Ft. Lauderdale should perform well in 2016.
