For most of the post-World War II period, the demand for office space and the development of that space was synonymous with Atlanta. Since 2000, this pattern has changed as the industrial base of the Southeast has been driven out of the US. During the last four years, Atlanta’s office market has tended to lag behind overall national performance.
The vacancy rate in this market is still close to 14%. Over the next two years, conditions should continue to improve, with the demand for space falling in the range of 6 million sq ft to 7.5 million sq ft, and supply of new space equalling about 4 million sq ft.The focus in this region of the country has shifted to Florida, in particular the South and Central Florida markets.Employment growth has been strong in these markets for a variety of reasons. The Latin American economies have improved, and this section of the US has close commercial ties with Latin America. In addition, the stream of people and companies from the northern sections of the US is creating a major need for business services that require office space.
Orlando, in Central Florida, has evolved into a diverse economy with an impressive mix of industries. While known as a venue for entertainment services, a variety of manufacturing, distribution and high-tech companies have relocated into the region.Until 2005, employment growth in both Dallas and Houston had lagged behind the national average since 2000. This is in sharp contrast to their performance in the 1990s.
During that decade, the Southwest regional markets in Texas and Arizona prospered. Employment growth in Dallas, Houston and Phoenix were nearly double the national average for some years. The surging investment in the high-tech telecom industry located in Dallas and the concentration of the energy business into Houston contributed to the rapid growth in these two Texan metropolises. Phoenix benefited from a massive influx of people and businesses from California and other parts of the US.
Few barriers inhibit property development in these metropolitan areas property valuations services and this ease of development nearly always casts an actual or potential shadow over these property markets. Excessive office development in all three markets during the late 1990s has somewhat chastened lenders and even developers in the Texas markets. Steady employment growth in Phoenix has prompted developers to keep up the pace of office development; consequently, while the respective economies are doing much better, improvements in the office property markets are not proceeding quickly.
Low business and living costs, robust energy markets, stronger high-tech capital spending and strong population growth have finally revived these regional economies.
By the end of 2007, office employment growth is expected to lead to the absorption of nearly 8 million sq ft in the Dallas/Fort Worth metropolitan area, but new supply of space will approach 5 million sq ft. The balance is more favorable in Houston, where only about 2 million sq ft of new space will be added, while demand will be close to 7 million sq ft. In Phoenix, though, in excess of 8 million sq ft of office space will be added over the next two years and demand will equal about 7 million sq ft.