Here Are the Top 10 Office Markets With the Lowest Vacancy But Low Rates Don’t Necessarily Mean a Strong Market Three cities are tied for fifth place among the top 10 cities with the lowest vacancies. (Pexels)

Despite talk of a slowing economy, demand for office space has picked up recently.

Filling space was weak in the first quarter but rebounded in the second quarter to “post the strongest demand since 2016,” Robert Calhoun, CoStar’s managing director and senior economist, said in the latest report on the office market. 

Average vacancy hit 9.6%, which Calhoun said is the lowest point since the end of the last recession.

This cycle has seen many tenants moving to smaller but upgraded, amenity-rich spaces than they might once have filled. Many big metropolitan areas have office vacancies higher than the national average because of new construction. Others have new construction but not at a pace that outstrips demand. Some have demand but little construction. Then there are regions where low office vacancy may not necessarily be a good indicator of their economic condition. 

Here are the Top 10 cities with the lowest office vacancy rates.

10. Salt Lake City: 6.5%

Mountain America Tower opened in Sandy, Utah, last year. (CoStar)

The technology sector has helped drive demand for space. There are some 6,000 tech and software companies in the area, according to CoStar’s Salt Lake City market report. E-commerce giant Overstock’s headquarters is in a Salt Lake City suburb. 

Much of the new office development has occurred south of Salt Lake City in Draper and Sandy. There’s about 3.1 million square feet under construction now but more than half is leased already. 

The lowest vacancy tends to be in higher-end, newer properties. 

9. Nashville, Tennessee: 6.3%

Rendering of Broadwest, an office tower under construction along Nashville's West End Avenue. (CoStar)

Though the region's office vacancy is one of the lowest in the country, it’s higher than a year ago because of new construction. According to CoStar data, 7.3 million square feet of office space is under construction, representing 8% of the area’s overall office inventory. 

That percentage is the highest in the country among big metropolitan areas. With that much construction, vacancy may grow. 

CoStar’s Nashville market report noted that companies moving in or near the city has “halted vacancy recovery” in many parts of the suburbs. 

8. San Francisco: 6.2%

Uber's new headquarters is under construction in San Francisco's Mission Bay. (CoStar) 

The tech sector, of course, feeds much of the new office demand. There’s about 7.1 million square feet of office space under construction. But much of what’s being built has been leased by tech companies before the buildings are completed.

“Despite multiple building completions over the past several years, demand has outweighed supply growth, sending vacancy in the metro toward expansion era lows,” CoStar’s San Francisco market report says.

(Tie) 5. Honolulu: 6.1% 

American Savings Bank's is the first new office building in downtown Honolulu in 25 years. (CoStar)

Though it enjoys one of the lowest vacancies, rates have been a lot lower in the past. Hawaii is a costly place to build as well as live. There’s been little new construction over the years, and CoStar data shows that no new space is being built at the moment. 

Its remoteness has meant few opportunities to attract office tenants. Most new tenants are local firms or government agencies. This year, Honolulu-based American Savings Bank finished construction on a 373,000-square-foot building for itself, the first new office building in downtown in 25 years. 

(Tie) 5. Seattle: 6.1%

The f5 Tower opened in downtown Seattle in 2017. (CoStar)

Vacancy remains tight in spite of millions of square feet of office space added over the past four years. It currently has 7.2 million square feet under construction now. 

Amazon, which is based in Seattle, accounted for 40% of the supply added between 2015 and last year, according to CoStar’s Seattle market report. Technology and biotechnology companies leased up the rest of the speculative office space. 

(Tie) 5. Richmond, Virginia: 6.1%

Dominion Energy occupies all of this newly opened office tower in downtown Richmond. (CoStar)

Virginia’s state capital hasn’t seen a tremendous amount of new office construction over the past decade. But when it is built, leasing is strong. 

“Speculative medical office space is leasing up at an extraordinary pace,” CoStar’s Richmond market report notes. 

Office buildings built for specific tenants have helped boost occupancy numbers. Scott’s Addition, an historic district in the city, has become a popular spot for new office construction. 

4. Louisville, Kentucky: 5.8% 

BrightSpring Health Services anchored this newly opened office building in Louisville. (CoStar)

Lack of new construction paired with a modicum of demand has pushed the vacancy rate to a near historic low. There’s just 190,000 square feet under construction, more than half of which is in Olympia Park Plaza, a development northeast of downtown Louisville.

According to CoStar’s Louisville market report, most new construction has involved renovating outdated buildings. Some buildings have been converted to hotels or residential, which cuts into the office space inventory.

3. Providence, Rhode Island: 5% 

Rendering of the Wexford Innovation Center in Providence. (CoStar) 

This region's low office vacancy stems from anemic construction, which is below historical averages, according to CoStar’s Providence market report. There’s just 126,000 square feet under construction now.

Providence is one of the few cities in the country that has been slow to recover from the recession a decade ago. CoStar’s report noted that the metropolitan area has focused on the slow-growing health services sector. 

2. Raleigh, North Carolina: 4.9%

One Glenwood in west Raleigh was recently completed. (CoStar)

The region has been one of the fastest growing areas in the country over the past three years. Office vacancy has been declining over the past decade, even with new construction. 

Currently, there’s 2 million square feet being built, mostly in downtown Raleigh and the Research Triangle. According to CoStar’s Raleigh market report, a third of what’s under construction has already been leased. 

1. Grand Rapids, Michigan: 4.3%

Training center built for Consumers Energy in 2017. (CoStar)

This office market is just ahead of Honolulu’s for the smallest on the Top 10. The recession hit the area hard, given its heavy reliance on manufacturing. 

But the area has recovered well. Job growth has exceeded the national average every year for the past decade, according to CoStar’s Grand Rapids market report. Much of that growth has come in manufacturing, but it’s also included a healthy dose of high-paying jobs in professional and business services as well as financial activities. 

Those companies have tended to lease the more expensive space in a revitalizing downtown Grand Rapids. 

Like other cities on the list, Grand Rapids isn’t a hotbed of office construction. CoStar data shows just 12,500 square feet under construction.

Courtesy of https://www.loopnet.com/learn/here-are-the-top-10-office-markets-with-the-lowest-vacancy/22771283/