Though U.S. office vacancy remained unchanged at 15.6 percent in Q1, as the year continues, we expect levels to drop below 15 percent for the first time in a decade. Corporate growth is driving enhanced touring velocity and expansionary leasing activity, and landlords are responding by growing rents at the most aggressive rate of the cycle to date.
Currently only a handful of largely suburban markets remain tenant-favorable, and that movement away from tenants is only expected to increase over the next few quarters. With this leverage, landlords will continue driving rents upward, surpassing an additional 5.0-percent increase by year end.
Construction is on the rise, with 11 million square feet delivered in Q1, and U.S. markets are set to deliver the highest amount of new product this cycle by year-end as more than 80 million square feet are under development. This uptick in development activity will eventually stabilize market fundamentals, balancing the sales among tenant and landlords, as vacant supply is delivered over the next 24 months.