Office Vacancies Near 4-Year High; 24% Vacancies in Suburbs; Rents Fall

Lease asking prices are falling on office space and actual prices even faster as U.S. Office Vacancies Near 4-Year High on Job Losses.

U.S. office vacancies rose to the highest in four years in the second quarter as job losses mounted and demand for space declined, Reis Inc. said.

The vacancy rate increased to 15.9 percent from 13.2 percent a year earlier, the New York-based research firm said today in a statement. Vacancies hit 16 percent in the first quarter of 2005 and were at 15.2 percent in the first quarter of this year, according to Reis.

Landlords� asking rents fell 1.4 percent to an average $28.43 per square foot. Actual rents paid by tenants dropped 2.7 percent, a sign that landlords are continuing to offer concessions such as one or more months of free rent, Reis said.

Actual rents, also known as effective rents, were down 6.7 percent from a year earlier, according to Reis.

Distress in Suburban Office Market

Crains Chicago Business is discussing Rising vacancies, distress in suburban office market.

Suburban office vacancies climbed for a 10th straight quarter, nearing the highest level this decade as companies continue to cut jobs and reduce their space.

Almost one-fourth of the 96 million square feet of office space in the suburbs is now vacant, including space that�s available for sublease, according to real estate services firm Jones Lang LaSalle Inc.

The rising vacancy rate, which has soared to 24.3% from 19.8% two years ago, has caused a handful of suburban office landlords to default on their loans, leading to at least two big foreclosure lawsuits.

Downtown, the overall office vacancy rate now stands at 13.7%, while the direct vacancy rate is just 11.5%.

Deals for tenants are plentiful, with aggressive rents and concession packages becoming the norm. That�s particularly true in the northwest suburbs around Schaumburg, where the overall vacancy rate is more than 26%.

While rents overall haven�t dropped dramatically, down just 2% for the year, landlords are upping tenant improvement allowances and offering lots of free rent.

D.C. Vacancies Soar, Driving Down Rent

The Washington Post is reporting Office Vacancies Soar, Driving Down Rent.

The office vacancy rates in the District, Northern Virginia and suburban Maryland rose substantially in the second quarter, forcing building owners to push down rents to fill empty space, according to an analysis released yesterday.

The District, which benefited for years from a building boom, hit a double-digit vacancy rate for the first time since 1997, according to the study by CB Richard Ellis.

Numerous Washington-area firms have been cutting staff and putting off expansions to save money, postponing or canceling plans to lease bigger quarters. Excess space is rising with some companies contracting and others closing offices and going out of business.

The result is that the vacancy rate rose to 10.2 percent in the second quarter from 8.5 percent in the first quarter in the District, to 13.9 percent from 12.9 percent in Northern Virginia; and to 13.9 percent from 13.1 percent in suburban Maryland.

"We're working as advocates for our clients to reduce rates," said Mary Lynch, vice president for property management at Akridge, which manages 35 commercial properties in the region. "At our Homer Building, we've reduced energy costs by 34 percent," a savings that is passed on to tenants.

Manhattan office vacancies at 15-year high.

Reuters is reporting Manhattan office vacancy hits 15-year high.

The vacancy rate for top quality Midtown Manhattan office buildings reached its highest level in 15 years and asking rents fell nearly 11 percent in the second quarter, a Jones Lang LaSalle (JLL) report said.

Midtown Class A office space, which commands the highest rents and whose demand is driven by the financial industry, saw vacancy rates reach 15 percent at midyear 2009, up from 13.5 percent at the end of the first quarter, Jones Lang LaSalle said in a report released on Wednesday.

Vacancies have more than doubled from a low of 7.2 percent in December 2007, the report said.

The average asking rent for Class A Midtown space fell by a record 10.8 percent to $73.10 per square foot at the end of the quarter.

Every day I see stories like this. And every day I wonder what the heck the hyperinflationists are thinking. These are not hyperinflationary conditions; these are not even inflationary conditions.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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