The overall U.S. vacancy rate decreased by 10 basis points (bps) in Q3 to 12.8%, the lowest rate since Q4 2007. The downtown vacancy rate was unchanged at 10.5%, as net absorption was on par with new supply. Strong net absorption drove down the suburban vacancy rate by 10 bps to 14.1%, matching the lowest level of the current cycle.
Net absorption totaled 11.0 million sq. ft., slightly above the quarterly average of 10.5 million sq. ft. since 2011. The suburbs accounted for 93% of net absorption, an outsized percentage compared with their two-thirds share of existing inventory.
Tenant demand in tech-driven markets remained robust, matching or exceeding high levels of new supply in recent quarters. San Francisco, San Jose and Seattle together have accounted for more than 10 million sq. ft. of positive net absorption year-to-date.
Construction completions decreased by nearly half compared with the first two quarters of the year, with 7.4 million sq. ft. delivered in Q3. The slowdown was almost entirely in the downtown markets: Downtown completions totaled less than 900,000 sq. ft. in Q3 after 11.8 million sq. ft. came online in H1—the highest first-half total since 2002.
The average gross asking rent rose by 1.9% year-over-year and 1.2% quarter-over-quarter, continuing the trend of moderate rent growth over the past year.
