US office vacancy highest in 16 years

The national office vacancy rate reached 17.2% in the first three months of 2010, its highest level since 1994 according to a report from Reis. The rate of decline in rents has slowed marginally, prompting speculation about whether the sector is stabilising.

US office properties shed more than 11 million-square-feet of occupied space in the first quarter of this year, forcing office vacancy levels to hit 17.2 percent – their highest in 16 years, according to a report from real estate research firm Reis.

The increase in national vacancy levels during the first three months of 2010 represents the ninth consecutive quarter that office properties registered a loss of occupied space. Vacancy levels rose in 57 out of 79 US metropolitan areas.

While asking and effective rents continued to fall – both declined by -0.8 percent in the first quarter – there was a noticeable slowdown in the first quarter 2010 rate of decline compared to quarterly declines in 2009. Reis said the usual lag in commercial real estate recovery cycles would prevent rental growth from turning positive, thereby keeping vacancies on the rise for another 12 months to 18 months. 

Year-on-year, New York and California cities Orange County, San Jose and San Diego all registered effective rent declines of more than 10 percent.

New developments have also hit a record low, with only 3.6 million-square-feet of new office space coming online, the lowest level since 1999 when Reis began publishing quarterly data.

“There is no significant amount of new construction that will be completed in these markets during the next two years,” said FirstService chairman Robert Freedman. “Even with moderate economic growth, space availabilities will become tighter in 2011 and 2012.”

In New York, the vacancy rate climbed marginally to 11.7 percent from 11.6 percent.

Still, according to Broker FirstService Williams, who also released a first quarter analysis today, Manhattan asking rents increased slightly in two of the city’s three major submarkets, Midtown North and Midtown South. Downtown was the only submarket where asking rents dropped.

Another positive sign for the industry included in the analysis was the fact that overall leasing for the first quarter of 2010 increased to 3.8 million-square-feet, up from 3.4 million-square-feet in the same quarter a year ago.