U.S. Office ViewPoint – Part 3 | Penciling it out : Where is office construction happening and why?

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.

Key Takeaways:

• 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.

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​Read all three parts for the 2016 U.S. Office Viewpoint series on construction costs:

• Part One: Why are Construction Costs Rising?
• Part Two: Beyond Rent Growth: Shifts in Office Use Help Determine Where to Build