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U.S. Office Vacancy Rate Creeps Up In First Quarter Despite Strong Absorption

Reis Denham Quote

NEW YORK CITY — Despite a variety of tailwinds buoying the U.S. office sector, vacancy sill increased 10 basis points in the first quarter of 2018, according to New York-based commercial real estate data firm Reis.

Across the 79 major metros tracked by Reis, office vacancy rose to 16.5 percent at the end of the quarter. That’s up from 16.4 percent at the end of the previous quarter and 16.3 percent one year earlier.

The vacancy increase came about during a quarter that featured a strong job market, rising rents (asking rents rose 20 cents per square foot) and strong absorption (6.2 million square feet). Vacancy rates increased in 41 of the 79 metros, though, as new completions outpaced the rate of absorption. New construction during the quarter totaled 10.9 million square feet.

2018-04-03-Reis-Office-Stats

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Despite the slight uptick in the vacancy rate, Reis remains optimistic about the outlook for the office sector. “The first quarter tends to see the lowest [leasing] activity. Thus, this was a relatively strong quarter given the Nor’easters that plagued the Northeast,” says Barbara Byrne Denham, senior economist with Reis.

Although absorption wasn’t able to keep up with new completions, the office sector absorbed nearly 300,000 square feet more in the first quarter of 2018 than during the same period in 2017.

Overall, Reis predicts a strong year for the office sector in 2018, particularly compared with the “wait-and-see” approach taken by tenants during 2017.

“The market seemed to have stagnated in 2017 as companies put off making office leasing decisions until a fiscal stimulus was passed,” says Denham. “The passing of the Tax Cuts and Jobs Act should deliver higher profits and stronger business confidence, which should spur stronger office leasing [activity] this year.”

— Jeff Shaw

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