Property Types
Office
Jul 30, 2009
By: Melissa Lin, Contributing Editor
U.S. office vacancy rates have reached their highest point in four years, and rents are falling as a result, according to a report from Cushman & Wakefield Inc. Vacancies reached 13.7 percent at midyear, matching second-quarter 2005 figures, though they still trailed the decade high of 15.5 percent, reached in the second and third quarters of 2003.
Among the main contributing factors to the climbing vacancy are new CBD deliveries totaling 3.2 million square feet, in addition to the current 26-year high unemployment rate of almost 10 percent. These have led to an inevitable, combined effect of abated demand for available office space, leaving more than two-thirds of newly constructed area vacant at the end of June. The vacancy rate also strongly corresponds with continually rising available sublease space and a 19 percent decline in overall office leasing activity.
Maria Sicola, executive managing director & head of Americas research for Cushman & Wakefield, considers the rising vacancy rates “a sign that the office market is still soft and will continue to weaken in the short turn,” expecting that they will continue to rise throughout the rest of this year and into 2010.
As a result of economic conditions and market fundamentals, national average asking rates have declined by 3.2 percent since the last quarter, now at $38.25 per square foot from $39.50 in the first quarter. Those of New York, though still the highest of the states, have declined 7.4 percent, followed by the second highest in Washington, also down 7.9 percent. Four cities prove to be anomalies, however: Houston, San Francisco, San Diego and Texas, which all saw increased. Meanwhile those of Hartford, Conn., remain unchanged.
The lower rates are good news for tenants, of course, but the renter’s market won’t last forever, according to Sicola. “Right now there are definitely opportunities across the board for tenants,” she said, “but at some point of time in the cycle, that window of opportunity will close and rents will in fact begin to rise.”
Sicola noted two trends that may lead to rents moving back upward in the near future: the slowing rate of negative absorption in the second quarter and improved leasing activity in June. While the total absorption rate for the first half of 2009 amounted to negative 24.9 million square feet, in comparison to the negative 4.2 million square feet for the first half of 2008, the net change in occupied space was 10.9 million square feet by the second quarter--a quantity lower than the 14.0 million recorded in the first quarter.
Sicola also points out that tenants will soon be forced to look at imminent expiration dates on leases and will have to make decisions in the latter part of this year into 2010, which will help to sustain the market. “Until the third quarter of 2010, the balance will be in favor of tenants,” she predicts. “We hope that we will see a rise in employment and general economic growth-which in turn will cause an improvement in the market.”
By: Melissa Lin, Contributing Editor
U.S. office vacancy rates have reached their highest point in four years, and rents are falling as a result, according to a report from Cushman & Wakefield Inc. Vacancies reached 13.7 percent at midyear, matching second-quarter 2005 figures, though they still trailed the decade high of 15.5 percent, reached in the second and third quarters of 2003.
Among the main contributing factors to the climbing vacancy are new CBD deliveries totaling 3.2 million square feet, in addition to the current 26-year high unemployment rate of almost 10 percent. These have led to an inevitable, combined effect of abated demand for available office space, leaving more than two-thirds of newly constructed area vacant at the end of June. The vacancy rate also strongly corresponds with continually rising available sublease space and a 19 percent decline in overall office leasing activity.
Maria Sicola, executive managing director & head of Americas research for Cushman & Wakefield, considers the rising vacancy rates “a sign that the office market is still soft and will continue to weaken in the short turn,” expecting that they will continue to rise throughout the rest of this year and into 2010.
As a result of economic conditions and market fundamentals, national average asking rates have declined by 3.2 percent since the last quarter, now at $38.25 per square foot from $39.50 in the first quarter. Those of New York, though still the highest of the states, have declined 7.4 percent, followed by the second highest in Washington, also down 7.9 percent. Four cities prove to be anomalies, however: Houston, San Francisco, San Diego and Texas, which all saw increased. Meanwhile those of Hartford, Conn., remain unchanged.
The lower rates are good news for tenants, of course, but the renter’s market won’t last forever, according to Sicola. “Right now there are definitely opportunities across the board for tenants,” she said, “but at some point of time in the cycle, that window of opportunity will close and rents will in fact begin to rise.”
Sicola noted two trends that may lead to rents moving back upward in the near future: the slowing rate of negative absorption in the second quarter and improved leasing activity in June. While the total absorption rate for the first half of 2009 amounted to negative 24.9 million square feet, in comparison to the negative 4.2 million square feet for the first half of 2008, the net change in occupied space was 10.9 million square feet by the second quarter--a quantity lower than the 14.0 million recorded in the first quarter.
Sicola also points out that tenants will soon be forced to look at imminent expiration dates on leases and will have to make decisions in the latter part of this year into 2010, which will help to sustain the market. “Until the third quarter of 2010, the balance will be in favor of tenants,” she predicts. “We hope that we will see a rise in employment and general economic growth-which in turn will cause an improvement in the market.”
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