Dive Brief:
- Demand for office space has not yet resulted in a rush toward speculative building, as developers wait for higher rents to balance out higher construction costs, the National Real Estate Investor reported.
- Industry experts said "construction is catching up to demand" in primary markets like New York City and San Francisco, resulting in a slowdown of demand for new office space.
- In some areas of the country, the lack of land and growing construction costs are also keeping speculative construction at bay and have driven companies to turn to renovated class-B properties in good locations.
Dive Insight:
The uptick in "office-using" employment after a first-quarter slump should keep demand reasonably high for the remainder of the year, according to CBRE. However, slow rent growth in New York City is signaling a shift from a landlord's market to a tenant's market, Savills Studley's Keith DeCoster told the NREI. Developers are "sensing some lingering caution from corporate executive teams, leaving them reluctant to build on a speculative basis," according to the NREI.
Earlier this month, construction data company CMD projected that the main drivers of construction starts for the rest of 2016, 6.4% of a 7.4% hike, will be nonresidential categories like office buildings, spurred on by low interest rates, which continue to make financing of construction projects an attractive option.
The commercial remodeling business is on the rise as well, with property data company Buildfax reporting a 26% increase in that segment since 2013 and a 7% increase since 2014. Buildfax said that with the expected growth in the country's service industry workforce, commercial remodeling activity should continue to increase.
General Electric recently announced a $100 million renovation of two historic Boston buildings, plus the construction of a third, that will eventually be the company's Boston headquarters. Famed global architecture firm Gensler will design the project. Ford is also revamping its Dearborn, MI, campus, an undertaking valued at $1.2 billion. The scope of work includes the rehab of 70 buildings and the construction of a new research and development center.