Economists' Outlook

Housing stats and analysis from NAR's research experts.

Rising Supply in CBD Markets Puts Pressure on Office Vacancies in the First Quarter of 2017

In the wake of a moderate 2016, the rate of economic growth remained tepid during the first quarter of 2017. Based on the second estimate of real gross domestic product (GDP) from the Bureau of Economic Analysis (BEA), the United States economy rose at an annual rate of 1.2 percent. While the second estimate was an improvement over the initial 0.7 percent, it was far below the average 3.4 percent typical of first-quarter GDP growth over the 1950-16 period, but more in line with the 1.0 percent experienced over the more recent 2000-16 stretch.

Payroll employment advanced in the first quarter of 2017, with a net gain of 527,000 new jobs, according to the Bureau of Labor Statistics (BLS). Private service-providing industries continued as the growth engine during the quarter, with 341,000 net new jobs.

payroll employment

Within the service industries, professional and business services posted the highest number of net new employees—151,000. Financial services added 39,000 new positions, previewing increased demand for office space for the year ahead. The education and health services sector added the second-highest number of net new positions—95,000, followed by leisure and hospitality, with 57,000 net new payroll jobs.

Office demand was steady in the first quarter of 2017. Net absorption totaled 7.2 million square feet, based on data from CBRE. Suburban office space was in high demand during the quarter, accounting for 74 percent of total net absorption. Office construction picked up the pace, contributing 12.0 million square feet to the supply pipeline during the quarter, with new suburban completions totaling 8.3 million square feet. With the solid construction, office vacancies increased 10 basis points, to 13.0 percent. Rents for office properties experienced a slowdown as new space entered the market. During the first quarter, asking rents averaged $31.99 per square foot, a 4.9 percent annual rate of growth.


Commercial fundamentals in small cap markets remained positive during the first quarter of 2017, but the pace of growth moderated, according to REALTORS®’ data. Leasing volume advanced 2.3 percent from the prior quarter. New construction increased by 2.3 percent from the prior quarter, the slowest pace since the first quarter of 2015. Leasing rates rose by 3.8 percent, as concessions declined 11.1 percent.

vacancy rates

Vacancy rates continued declining in the first quarter of this year. Lease terms remained steady, with 36-month and 60-month leases capturing 61.0 percent of the market. One-year and two-year leases made up 23.0 percent of total.

To access the Commercial Real Estate Outlook: 2017.Q2 report visit

Notice: The information on this page may not be current. The archive is a collection of content previously published on one or more NAR web properties. Archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association of REALTORS® disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.