The US office market has weakened further over the past three months after a report by real estate advisory firm Colliers International revealed vacancy rates had risen by 27 basis points to 13.27 percent – the third consecutive quarterly increase.
The credit market dislocation was dampening demand for office space in areas closely tied to the financial services industry and the US housing meltdown, the report said, with Midtown and Downtown Manhattan particularly affected. In the three months to June 30, vacancy rates in the two locations increased to 8.2 percent and 8.6 percent respectively compared to 7.1 percent and seven percent as of the end of March.
“Amid the spate of financial sector woes experienced in the US during the first two quarters, the office market has capitulated as we reach the midpoint of the year,” said Ross Moore, Colliers executive vice president and director of market research, in a statement. He argued tenants were adopting a “wait and see” attitude while landlords were stepping up their efforts to fill vacant space.
Nationally, Class A properties were among the worst affected offices with vacancy rates rising to 12.69 percent from 12.19 percent. Among Class B and C properties, vacancy rates increased eight basis points to 13.71 percent.
Rents however have increased over the past year, with downtown lease rates on Class A properties increasing 7.6 percent. Class A suburban properties have risen around two percent over the same period.
Colliers said offices in central business districts such as Midtown and Downtown Manhattan, Washington DC, San Francisco, Las Vegas, Denver, Orlando and Sacramento all saw rising vacancy rates. Silicon Valley in California’s San Jose saw one of the steepest increases rising to 19.2 percent from 13.8 percent. The suburban office market of Las Vegas saw one of the largest decreases in vacancy rates over the past quarter falling from 29 percent to 18.8 percent by June 30.