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Transaction volume across the CRE market slowed during the first part of 2019, though central business district (CBD) office activity saw one of the sharpest declines of all areas of the CRE market. CBD office volume fell 14% over the first five months of 2019 compared to last year as activity across major markets slowed meaningfully. Suburban office volume declined 6% in the same time period. Unlike in CBDs, though, the decline in suburban markets was mostly due to slowing activity in secondary and tertiary markets.

Moderating quarterly figures mask the supportive trends that remain in place across the national office market. CBD office volume over the past 12 months, for example, rose 10% compared to the prior 12-month period. Suburban office volume declined 2% over 12 months but remained near an all-time high of $84 billion.1

Nationally, growth in office rental prices has decelerated from approximately 5% in 2015 to 2.0% in Q1 2019.2 However, metro areas with entrenched and growing tech sectors, including San Jose, Charlotte and Seattle, continue to see asking rent growth well above the national average.3 Technology, coworking, finance and insurance accounted for more than half of all office leasing activity in Q1 2019.4

Looking ahead, a strong national employment picture combined with a roughly even supply/demand dynamic within the office space could provide an ongoing tailwind to the sector. Office vacancy rates across all subsectors have been slowly declining from approximately 17% in 2010 to 13.3% today, where they are forecast to remain until 2020. The gap between 10.5% vacancies in CBDs and 13.7% in suburban offices, however, remains pronounced.5

1 Real Capital Analytics, as of May 31, 2019.
2 Reis, as of March 31, 2019.
3 Bloomberg, as of May 31, 2019.
4 JLL, United States office outlook Q1 2019, April 13, 2019,
5 UBS, U.S. Real Estate Summary, Edition 1, 2019.

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