ShareThe U.S. economy sputtered during the first quarter of 2016, as global economic activity throttled back and companies found financial markets’ volatility unsettling. Based on the first estimate from the Bureau of Economic Analysis, real gross domestic product (GDP) rose at an annual rate of 0.5 percent. The figure is in line with last year’s first quarter reading of 0.6 percent. The GDP number remained well below the long-run historical average of 3.0 percent.
The first quarter employment landscape offered a few high points. Payrolls rose at a solid pace, adding 609,000 net new jobs. Average weekly earnings of private employees rose by 2.1 percent in the first quarter of this year, compared to one year earlier.
Employment in private service-providing industries provided the main thrust for new job growth during the first quarter of the year, with 561,000 net new jobs. The retail trade boosted payrolls during the quarter by 157,500 net positions. Education and health gained 146,000 new positions. With warmer-than-usual weather, leisure and hospitality payrolls rose by 95,000 net new positions. Employment in professional and business services gained 70,000 net new jobs, the slowest pace in five years. Financial services added 39,000 new positions to payrolls during the period, keeping demand for office space positive.
Office net absorption totaled 7.7 million square feet in the first quarter of the year, a decline from last quarter’s 18.7 million square feet, based on data from JLL. Occupancy growth—expansionary leases—drove leasing activity during the quarter, coupled with increases in shared office space. Office construction added 10.6 million square feet to the supply pipeline during the quarter. Overall office vacancies rose 10 basis points on a yearly basis, to 14.8 percent in the first quarter. CBD office properties continued posting lower availability than their suburban counterparts. Rents for office properties rose 3.2 percent during the first quarter.
Commercial fundamentals in smaller markets continued improving during the first quarter of 2016, but at a slower pace. Leasing volume during the quarter rose 1.3 percent over the prior quarter. Leasing rates advanced at a slower pace as well, rising 1.9 percent in the first quarter, compared with the 2.5 percent advance recorded during the fourth quarter. Office properties posted leases averaging $43 per square foot. Office vacancies declined 174 basis points, to 13.4 percent during the first quarter.
NAR members’ average gross lease volume for the quarter was $473,000, 36.4 percent lower than the previous period. New construction picked up, posting a 5.3 percent gain from the fourth quarter of 2015, compared with 3.7 percent in the prior quarter.
Lease concessions declined 3.9 percent. Tenant improvement (TI) allowances averaged $9 per square foot per year nationally.
To access the Commercial Real Estate Outlook: 2016.Q2 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.