Office Space demand increases resulting in rent growth throughout the U.S.  The Denver office vacancy rate has decreased for the third consecutive year in a row and now stands at approximately 12%, down from 12.4% at the end of September 2012.

Nearly every city across the country has seen significant gains for office space in 2012. Other factors including new limited construction coupled with significant demolition of older buildings have also contributed to increased demand. Office vacancy rates have decreased by 50 basis points during the past year to 12.3% at the end of the fourth quarter 2012. Occupancy gains have taken place in a broad spectrum of U.S. markets which will ultimately result in broad rental rate increases this year.

The energy and tech based industries will contribute significantly to absorption which tend to gravitate to low regulation, low tax states. Conversely, markets with high regulation and cost structure tend to be the most stagnant. Also, some markets with industry specific or regional economic issues such as northern New Jersey where the pharmaceutical industry has contracted are exceptions to the national trend. Areas such as Phoenix, Atlanta and Orange County which have suffered significantly in the housing crisis joined traditionally strong markets such as Dallas/Ft. Worth and Houston in recovery and these local economies have benefited significantly from increased employment opportunities and the gradual improvement of the housing market.

Year 2012 showed slightly lower leasing volume than the prior leasing year; however present dynamics will continue to push the U.S. office vacancy rate down. Additionally, factors such as the limited construction of new office buildings, with the exception of medical office and health care related projects in some markets, and with the significant demolition of older space, vacancy rates decreased over most of the country in the fourth quarter. Many markets are in an 11% to 12% average long-term vacancy rate and as markets drop below that level, rental growth will result.

Rental growth rose 1.7% in 2012 and continues to increase. Average growth may reach 3% in 2013 and as limited supply is absorbed, rising rents will spread to more markets. With more occupancy growth on the way, rising rents, values and returns will certainly follow. The office sector will in all probability see improved national occupancy rates going forward of one percentage point or more. In fact, even overbuilt sub-markets are now seeing increased occupancy resulting in significant rental growth rates in these markets. While there is a general trend for occupancy gains spreading across a broad spectrum of U.S. markets, absorption numbers also reflect that businesses are reevaluating their decisions on where to lease space predicated upon local economic and regulatory conditions and local employment.

A majority of the strong markets are seeing very solid occupancy gains ultimately resulting in landlords finally beginning to consider raising rental rates. A number of office sub-markets experiencing declining vacancy rates are estimated to have exceeded 50% in the fourth quarter, which is the highest since the peak at the last boom cycle.