Office rents in many cities across the US could drop by as much as 25 percent, according to a report by real estate research firm Foresight Analytics.
A combination of massive job losses and new supply coming to the market will push vacancy rates higher, and force rents down. Seattle is expected to see average office rents fall by up to 27.5 percent in 2009, Foresight said, while San Jose could see rents decline by as much as 26.1 percent.
Foresight partner Matt Anderson said claims that office markets were not in jeopardy in the US because they were not suffering from the same “oversupply” issues seen during the RTC crisis of the early 1990s were flawed.
“The US is facing unprecedented job losses in sectors that occupy office space,” he said. “Lost jobs will result not only in a lack of new demand, but also in significant give-backs of currently leased office space in markets around the nation. New supply is less of a factor today than in previous downturns, but it nevertheless has an important impact on office availability.”
One of the hardest hit areas, Anderson said, would be Riverside-San Bernardino, in Southern California. Office rents are expected to decline by almost 20 percent in the area, however vacancy rates will rise to an estimated 38.8 percent by the end of 2009 – a 13.7 percent increase over the previous year.
Other areas that will suffer from declining rents and rising vacancies include: Charlotte, North Carolina; Tampa, Florida; Miami; San Jose; Seattle; Phoenix, Los Angeles, Orlando and New York.
New York is expected to lose about 100,000 “office-occupying” jobs in 2009, according to Foresight, and combined with up to nine million square feet of new construction (some of which will come on line after 2009), vacancy rates could rise to 14 percent with renting falling by around 15 percent.