Office Building Demand Is Up on Rising Occupancy Rates

Real estate demand is going up all over the country and real estate investors are seeing business pick up as a result. One corner of the market that is often overlooked, despite being particularly profitable, is the office and commercial development space.

Here, an economic recovery is as present as anywhere else. According to data from Reis Reports, an independent market research firm, the nationwide office space vacancy rate has fallen to its lowest point since the third quarter of 2009. Reis sees vacancies falling throughout the country to 16.7% by the end of 2014, the lowest level in five years, thanks to more confidence in the demand for goods and services throughout the country.

A Modest Rise

Office-occupancy fell to its lowest rate in 2009, but demand has been rising steadily since then as more and more business owners recognize that the macroeconomic environment is slowly improving.

Office vacancies still remain far above pre-recession lows, when the vacancy rate fell to a rate 28% lower than the levels we’re seeing today. Many economists note that this is a modest improvement to the commercial real estate market and that the slow improvement makes it a more sustainable trend that will last over time.

Unlike the residential market, which is largely driven by consumer demand and population growth, the commercial real estate market is driven more by expectations for GDP growth and a more growth-friendly business environment.

This is important because it suggests that a continual and gradual improvement in the commercial market is likely to be the trend in 2015, which will make this kind of property development both more profitable andlower risk. According to Reis senior economist Ryan Severino, the U.S. is likely to see an increase in commercial lease rates and a lower amount of vacancies steadily throughout 2015. He told reporters earlier in January, “As long as we don’t get a random shock to the economy, and labor growth continues, vacancies should fall and rents should rise faster in 2015.”

Today’s Needs: Connectivity, Speed, Amenities

For today’s commercial real estate market, the needs are simple and easy to predict: connectivity, speed, and amenities. That connectivity need is both virtual and real. Businesses more than ever need fast and easy-to-use internet and telephony connections, and commercial properties with these assets will rent faster than others. Likewise, businesses need access to highways, roads, and public transportation hubs, as well as the ability to access these bits of infrastructure quickly and with little hassle. Municipalities that have these assets to offer will attract more business than others.

A third demand is picking up steam in the office market: access to amenities. More and more, workers are being encouraged to work in shared and semi-public spaces, or to take a break and hit the gym during the work day. Workers are also expecting the ability to access cafes, restaurants, and cultural events close to work and with little hassle. Offices that can deliver these amenities will attract more renters, so real estate developers need to keep a keen eye not only on the space they’re building up, but what’s near their space too.

How to Benefit

If you are a commercial real estate developer or investor looking to take advantage of the improving commercial real estate market, you need access to capital. If you need a hard money loan, a mezzanine loan, or a bridge loan for a commercial project, you need a real estate expert. Socotra Capital has been helping California investors for years by providing funding and expertise to get commercial property projects off the ground.

Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help. 

Leave a Reply