Hans Nordby, Managing Director of CoStar’s Portfolio Strategy team, was a recent guest on the nationally broadcast “America’s Commercial Real Estate Show” hosted by Michael Bull, a real estate industry expert. The weekly program focuses on what’s happening in the market, including forecasts and strategy plans from prominent industry analysts and authorities.
Nordby shared his insights on the current office market and some thoughts on future market trends during the “Office Landlord Strategies” edition of the show. Among key highlights, Nordby noted that, overall, the country is seeing a slowing of rental rate growth in the office sector, due mostly to a spike in new office deliveries year over year.
“2017 will be the first year in this real estate cycle in which net office completions will outpace absorption,” he explained. He added that even though the situation is not perfect for landlords, the market is still healthy.
“For tenants, the increase in new supply has given them back some buying power,” Nordby noted. “That said, this situation plays out differently in some markets,” such as central business districts like New York and San Francisco, where strong rent growth appears to continue, albeit at a slower pace. An overall rent decline is still apparent even in these key cities, however.
When asked specifically about large corporations, Nordby explained that “generally, big corporate tenants look for large blocks of space.” Since such large blocks are becoming more limited in key cities, there is an increasing amount of “build to suite type activity” in cities such as Minneapolis, Atlanta and San Diego, as well as in Houston a few years back.
He also noted that, across US office markets, decision-makers should be aware that it’s been some time since the industry has seen any significant type of recession. “We don’t see a precipitous factor of a recession within the next year,” he explained, but added that smart landlords and investors should consider that a recession may arise in the next two to three years.
Overall, Nordby’s advice to listeners was to look for longer leases and the best quality tenants going forward.
“Times are good today; while rent growth has slowed, it’s still positive, and vacancy rates are pretty low,” he said. Speaking to landlords, however, he added that “you may want to get the longest lease you can get your hands on and good tenant credit today – you might be glad you have it three years from now.”
To listen to the full interview and broadcast, click HERE.