September 29, 2016
This third report in our multi-part series on office construction compares current construction activity with previous cycles, and explores how office usage trends help determine where development occurs.
- Rental rates are approaching replacement costs in a growing number of markets, particularly in CBDs. But new construction does not pencil out, based on rent and construction costs alone, in many markets.
- This suggests that development is being driven by other factors, such as a shortage of large blocks, tenant requirements for more efficient and adaptable space, the emergence of new submarkets and local economic incentives.
- As replacement costs increase at a faster pace than market rents, development activity is expected to cool.
Read all three parts for the 2016 U.S. Office Viewpoint series on construction costs: