Office Bubble? Real Estate Deals Vanish in New York As Office Rents Decline (Northern Virginia Near Worst in Office Vacancy Rate)

Commercial office space has had a fantastic run since hitting bottom in 2009/2010. Much of it with the help of The Federal Reserve’s patented asset bubble blowing technology!

Bloomberg — Concern is mounting that real estate prices have peaked following six years of record-shattering growth, and there are signs of overbuilding in large cities such as New York and San Francisco—the biggest beneficiaries of the recent boom. Landlords are cutting rents and prices, spooked lenders are holding back, and the industry loses hope for Trump tax cuts. 

Much of the slowdown has nothing to do with Trump. Concern is mounting that real estate prices have peaked following six years of record-shattering growth, and there are signs of overbuilding in large cities such as New York and San Francisco—the biggest beneficiaries of the recent boom.

Let’s take a look at weighted-average asking rents for office space for the lowest 35 metro areas in terms of rent growth from 2016 Q1 to 2017 Q1. Silicon Valley leads the nation in largest asking rent decline (-12.19%) since 2016 Q1 while Midtown New York actually grew 0.40% over the past year. Suburban Maryland (-3.23%) and Northern Virginia (-0.25%) both saw declines in asking rents.

Here are the top 35 Metro area in terms of percentage change in asking rents. Notice that while Manhattan asking rents are flat to falling while Brooklyn asking rents rose 16.51%.  Same story holds for Silicon Valley (aka, San Jose). Silicon Valley fell -12.19% over the past year while just up the road in Oakland/East Bay, asking rents rose 15%.

Average office vacancy rates nationally stands at 13.2% in 2017 Q1, down ever so slightly from 13.4% in 2016 Q1. Northern Virginia (21.3%) was edged out for the worst office vacancy rate in the US by Dayton Ohio (23.3%) and Fairfield County, CT (23.1%).  Here is the Cushman Wakefield report on Northern Virginia’s overbuilt office market. CW_VA_Survey_1Q17 (1)

The lowest vacancy rate in the nation? El Paso, Texas at 6.4%. That is a far cry from Northern Virginia’s 21.3% office vacancy rate.

Fed Chair Janet Yellen standing next to her patented asset bubble machine.