With more of America going back to work, the squeeze is on for office space across the nation as companies look for room to house their expanding workforce.
In 2013, construction of new office space increased 17 percent nationwide, according to McGraw-Hill Research & Analytics.
But vacancy rates remained flat at 16.9 percent during the last quarter of 2013. The amount of vacant office space has fallen from a high of 17.6 percent in 2010, but it hasn’t come close to pre-recession levels in the 12 percent range.
Some are forecasting office rental growth to gain momentum in 2014. Real estate expert Jones Lang LaSalle sees office rentals increasing to 3.5 percent in 2014.
The biggest news for the office sector came in December, when the nation’s unemployment rate dropped below 7 percent, the lowest level in seven years, the U.S. Department of Labor reported.
While many of the jobs are in low-paying, low-skills positions that don’t use office space, government data shows the U.S. economy added 499,000 jobs in January, boosting hopes that the nation’s economy is poised for long-term improvement.
Workplace trends may further affect office space down the line. In both the short and long term, improvements in technology and employees’ desire to work from home will limit the need for additional desks.
Millennial workers prefer more flexible workspaces, so their needs are different from those of Baby Boomers. And co-working spaces in hip downtown areas may impact the need for office space around the country.
National vacancy rates over the coming year are forecast to decline 0.2 percentage points in the office market, according to the National Association of Realtors.
Top-performing markets, according to the CoStar Group, will include Atlanta, Boston, Chicago, Denver and New York. California also is expected to have good growth in areas including Orange County, San Francisco and San Jose.
All of these markets have seen at least 1 million square feet of positive net absorption of office space in 2013 – and that was before the year had even ended. New York’s vacancy rate of 9.9 percent led the nation, followed by Washington, D.C., at 10.3 percent.
Efficiency will have an impact on some workplaces into 2014 as companies in shrinking sectors continue to try to do more with fewer workers. This translates into a smaller need for new offices.
Construction has been slower than usual because of this long-term trend.
One market that has gained attention nationally is Detroit, where billionaire Dan Gilbert has bought a significant portion of downtown.
Gilbert, who owns and operates Quicken Loans in one of Detroit’s largest office buildings, has a real-estate arm called Bedrock Real Estate Services. Together, they have purchased more than 40 properties in downtown Detroit, the company recently said. Gilbert now has a total of about 8 million square feet of commercial and parking space downtown.
Despite the city’s widely publicized financial troubles, Gilbert, Quicken Loans and Bedrock Real Estate Services are feeling good about what is happening in the city, according to company officials.
“Detroit’s bankruptcy does not deter our downtown Detroit investment strategy,” said Matt Cullen, president and CEO of Rock Ventures. “We are as bullish as ever on the future of Detroit and will continue to invest in properties we believe strategically fit our mission to transform the city.”