The industrial sector has continued to heal while the office sector has suffered from low rents and a general market decline, according to a report from commercial real estate services provider Cassidy Turley, MBA NewsLink reported Nov. 8.
The Cassidy Turley report tracked 80 metropolitan markets, 43 of which reported either insignificant gains or negative absorption.
Net demand for industrial space rose drastically in the third quarter, totaling 27.5 million square feet, up from 20.1 million square feet in the second quarter.
“The third quarter figure was one of the strongest in this recovery and reflects the continuation of a robust uptrend that began in 2011,” Kevin Thorpe, chief economist with Cassidy Turley, told MBA NewsLink.
Businesses leased an additional 166 million square feet of industrial space over the last 21 months.
However, the U.S. office sector “shifted into lower gear as businesses became increasingly skittish about the upcoming elections and looming fiscal cliff,” Thorpe told MBA NewsLink.
The ‘fiscal cliff’ refers to the proposed tax increases and federal budget cuts scheduled to take place on Jan. 2, 2013, if Congress does not intervene.
The report noted that office sector net absorption slowed to 6.5 million square feet in the third quarter, down more than 50 percent from the second quarter. Unlike during the first part of the year when the majority of markets reported steady gains in office occupancy, the third quarter revealed a general softening in demand.
However, the office sector showed bright spots in such cities as Atlanta, Houston, New York and San Jose, Calif., all registering more than one million square feet of net absorption.
While office rents remained fixed at $21.69 per square foot, some U.S. markets — particularly in tech-heavy areas, have thrived; rents in San Francisco rose 19 percent between 2011 and 2012.
Sales of significant office properties rose 6 percent in August compared to the same point last year. Thorpe credited part of the boost to the Federal Reserve's quantitative easing.