U.S. CBD Office Leasing Up in 3Q, Though Down Year-Over-Year

23 Oct, 2012, New York

New leasing activity in U.S. office markets picked up during the third quarter of 2012, though levels are down from this time last year, according to Cushman & Wakefield's third quarter statistics for the U.S. Central Business District (CBD) office market.

Overall leasing activity for U.S. CBDs totaled 47.9 million square feet at the end of the third quarter of 2012, with 18.1 million square feet leased from July through September, compared to 14.2 million square feet leased during the second quarter and 15.6 million square feet leased during the first quarter. Year-over-year, overall leasing activity for 2012 is down 18.4 percent from the 58.7 million square feet leased at this time last year. While leasing activity declined year-over-year in the majority of U.S. CBDs tracked by Cushman & Wakefield, some markets, including San Francisco, Boston and Philadelphia saw increases of at least 10 percent.

"This quarter has seen a growing demand for office space, albeit slowly," said Maria Sicola, Executive Managing Director and Head of Americas Research for Cushman & Wakefield. "While leasing activity in CBDs is down nearly 20 percent compared to last year, we've seen less of a significant decline in the suburbs, suggesting that pricing is still playing a role in companies' real estate decisions."

The overall vacancy rate for U.S. CBDs remained at 13.4 percent at the end of the third quarter, unchanged from the previous quarter, and at its lowest level since the first quarter of 2009, when the overall vacancy rate was 12.5 percent. Year-over-year, the overall vacancy rate declined 0.4 percentage points from 13.8 percent at this time last year. Quarter-over-quarter, overall vacancy declined in 15 of the 30 U.S. CBDs tracked by Cushman & Wakefield, increased in 13 and remained unchanged in two. The largest quarter-over-quarter declines were in Jacksonville, Fla. (down 2.6 percentage points), Houston (down 1.8 percentage points), and Miami (down 1.8 percentage points).

Overall rental rates averaged $38.61 per square foot at the end of the third quarter, a $0.59 or 1.6 percent increase from $38.02 per square foot at midyear 2012, and up $1.81 or 4.9 percent from $36.80 per square foot at this time last year. San Francisco, Denver and Boston were among the markets with the greatest increases in asking rents.

Overall absorption - the net change in occupied space - was positive year-to-date, totaling 2.5 million square feet, though down from the positive 11.2 million square feet of absorption at this time last year. Eighteen of the 30 markets tracked by Cushman & Wakefield recorded positive absorption in the first nine months of the year.

No new construction was delivered to U.S. CBDs in the third quarter. Year-to-date, 503,805 square feet of new construction has been added to the U.S. CBD office market, including new buildings in Portland and Washington, D.C. An additional 11.5 million square feet is currently under construction, with projects throughout the U.S. expected to be completed through 2014.

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