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March | April | 2015 CCIM.com
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Vacancies have been inching lower with a
national average that improved to 16.7 per-
cent in fourth quarter 2014, according to data
from New York-based Reis Inc. Although
that f gure marks the lowest level since 3Q
2009, the year-over-year vacancy declined
only 20 basis points.
Positive Signs
Nevertheless, there are some positive signs
in both the broader economy and the of ce
market that fundamentals are poised for a
bigger leap forward this year. "I think you
will see the market gain traction over the
next couple of years," says Ryan Severino,
senior economist and director of research
at Reis. Gross domestic product growth has
been surging of late with an annualized 5
percent growth rate during the 3Q14, which
is the highest rate since 2003. Last year also
marked the biggest year of job growth in
more than a decade. Job growth averaged
246,000 per month in 2014 compared with
an average monthly gain of 194,000 in 2013,
according to the Bureau of Labor Statistics.
T e U.S. is f nally getting to that stage
where improvement in the labor market
is going to start translating into greater
demand for of ce space, Severino adds. To
that point, nearly 11 million square feet of
net absorption in 4Q14 was the highest level
since the 3Q 2007, according to Reis. In addi-
tion, there is still very little of ce develop-
ment by historical standards. T at should
mean great compression in vacancies and
more acceleration in rent growth in 2015
and 2016, he says.
During the past seven years, many compa-
nies have made do with the space they had,
perhaps extending in place in exchange for
rent reductions or concessions. Other ten-
ants were motivated to downsize or took
advantage of competitive pricing to upgrade
space for a comparable or reduced rent. "We
have seen a lot of tenants move from one
building to another to save 50 cents or a dol-
lar per square foot," says N. Justin Cazana,
CCIM, a principal and broker at Cushman &
Wakef eld Cornerstone in Knoxville, Tenn.
To some extent, that is still occurring.
But more companies also are shif ing into
expansion mode. In January, Cazana closed a
lease deal for one Knoxville tenant that relo-
cated to a newer 27,000-sf space in a class A
building. T e new space is about 60 percent
larger than the f rm's previous location. "T is
was one of the f rst deals where a tenant is
actually expanding in the market," Cazana
says. He is working with two other clients
that are both looking for about 20,000 sf of
new space, and Knoxville also is on the short
list for two new call centers. "So the activity
lately has really been exciting," he says.