Despite Healthy Economy, Office Vacancy Rates Still Stuck in the Mud in Several Markets
NEW YORK CITY — The national office vacancy rate held steady at 16.8 percent in the third quarter compared with the prior quarter, and was up 10 basis points from the same period a year ago, according to Reis, which tracks commercial properties in 79 metropolitan markets.
Net absorption was a healthy 4.5 million square feet in the quarter, partially a result of historically low unemployment (3.5 percent in September, according to the U.S. Bureau of Labor Statistics). However, a robust pipeline of new construction — 4.4 million square feet in the quarter — offset the absorption, leading vacancy to hold fast.
The net effect has been modest rent growth. The average effective rent per square foot grew from $27.49 in the second quarter to $27.65 in the third quarter, a 0.6 percent increase. The year-over-year increase was less than $1 per square foot.
Individual markets have also shows signs of softness, with 39 of the 79 metros tracked by Reis seeing increased office vacancy so far this year.
“Office occupancy growth has been sluggish throughout this expansion as firms lease far fewer square feet per added job,” the report states. “Rent growth has also disappointed owners.”
The report does note that occupancy should generally grow in the near term because the U.S. economy continues to generate new jobs every month, with about 350,000 new office jobs added this year through August, according to the Bureau of Labor Statistics.
“Indeed, the news on the office market has not generated headlines, but growth remains positive and should remain positive this year and next,” states the report.
To read the full results, click here.
— Jeff Shaw