Office development around the country continues at an accelerating rate, with construction levels in most major markets still above their recent averages, according to a recent Newmark Knight Frank report, The Office Construction Pipeline: Factors Shaping the Future of Development.
Steady U.S. employment growth during the past 12 months has been a major catalyst for new development, the report noted. Other factors, including tenants’ increased desire for urbanization and proximity to transit, are influencing the location of new construction in such markets as New York, Los Angeles, Chicago and San Francisco.
Despite the prolonged national economic expansion—second-longest on record, now completing its ninth year—new office construction in the current cycle never surpassed the pre-recession peak of 105 million square feet. The report posited this as a function of the shift of development to downtowns, the post-recession emphasis on office space densification and more disciplined decision-making by both owners and tenants.
Since 2013, about 40 percent of office construction has been located in downtown or urban core locations. This contrasts the pre-downturn years the end of the 2000s, when less than 25 percent of office construction occurred in downtown locations. Suburban office parks were long the focus of development, as many tenants favored campus settings.