US Office Market Sees Rental Rates Rise Despite Leasing Lull

16 Apr, 2012, New York

Average asking rents for U.S. office space increased in the first three months of 2011, despite a slowdown in leasing activity, according to Cushman & Wakefield's first quarter statistics for the Central Business District (CBD) office market.

The overall average asking rental rate for U.S. CBDs increased to $37.70 per square foot at the end of the first quarter, the highest level since the first quarter of 2009, when the average asking rental rate was $39.50 per square foot. Overall rental rates increased $0.49 from $37.21 per square foot at the end of 2011, and were up 5.2 percent from $35.85 per square foot at this time last year.

Eighteen of the 30 U.S. CBD office markets tracked by Cushman & Wakefield reported a quarterly increase in average asking rents, while 12 recorded a decrease. Markets with the largest quarterly increases included San Francisco (up $3.60 to $46.12 per square foot), Midtown South Manhattan (up $2.55 to $48.45 per square foot), Midtown Manhattan (up $1.26 to $66.68 per square foot), Houston (up $0.75 to $31.88 per square foot) and Chicago (up $0.56 to $31.84 per square foot).

The increase came despite a slowdown in overall leasing activity in U.S. CBDs. Companies signed 15.6 million square feet of office leases in the first quarter of the year, a 16.3 percent decline from the 18.2 million square feet signed in the first quarter of 2011.

"Leasing activity softened in the first quarter of the year, a continuation of the slowdown seen at the end of 2011," said Maria Sicola, executive managing director of Research for Cushman & Wakefield in the Americas. "While this trend could continue through the second quarter, we expect a noticeable pickup in activity in the second half of the year."

While leasing activity did slow, it had little effect on the overall vacancy rate, which remained at 13.5 percent at the end of the first quarter.

Overall absorption - the net change in occupied space - was positive for the first three months of 2012, totaling 1.3 million square feet, an improvement from the 733,161 square feet of positive absorption at this time last year. No new office construction was completed in the first quarter, and only 747,965 square feet of new construction is expected to be added to the U.S. CBD market this year.

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