High-Rise Office Space to be in Demand Over Next Year

High-Rise Office Space to be in Demand Over Next Year

Demand for office space is expected to grow in the coming years, even as construction of commercial properties struggles to meet that demand.

Jones Lang LaSalle’s Spring 2013 United States Skyline Review stated that options for tenants will shrink in the coming year, as development of new commercial buildings will remain slow to get off the ground. In the 34 cities the study covers, office space is expected to remain at a premium, which should help commercial building owners. John Sikaitis, senior vice president at Jones Lang LaSalle, stated that tenants and investors are both demanding higher quality office buildings, which is shifting the dynamic of the commercial real estate market.

“These are the segments of the markets that always lead the rest of the office sector in trends of leasing, rent and ultimately investment growth,” Sikaitis said. “The reason behind that is that these core micro-markets are increasingly where demographics are shifting and thus where tenants most want to be, allowing supply fundamentals to be tightest, giving investors the ability to capture tenants, grow rents, shrink yield and even construct new buildings.”

Landlords were able to increase their rents by 4.5 percent during 2012, and the study predicted that 85 percent of markets will see rents rise in 2013. Building managers can use property management software to track current rates and negotiate new contracts. The software allows files to be easily updated and changed to reflect current market conditions, which makes it easier to capitalize on existing trends. The market is expected to reach equilibrium in 2014, making it harder for owners to justify new rent increases, as tenants will have more freedom to find new locations.

Healthcare sees growth in construction

As the economy recovers, increasing demand and higher property values will provide additional incentive for investors to develop new office buildings. This dynamic is already beginning to play out within the healthcare industry. American Medical News recently reported that construction of medical office buildings has increased significantly in the past year. A Colliers International study found that 33.7 million square feet of medical office space was under construction during the fourth quarter of 2012, according to the source.

Most of the construction is made up of expansions to hospitals as they prepare for the new reality of the healthcare field. An aging population and the implementation of the Affordable Healthcare Act will increase the need for medical services. This is also encouraging investment in properties surrounding community hospitals to provide offices for doctors, specialists, clinicians and other healthcare professionals. A Marcus and Millichap report estimated that vacancies for medical facilities dropped to their lowest level since 2008, the source stated.

The need for well-equipped office buildings will continue to increase as the economy recovers and competition for space rises. Building managers can effectively oversee their properties with Building Engines software. The programs give operators the tools to manage contracts, track expenses, improve communication and monitor projects.

Source:  Industry News

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