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U.S. Office Vacancy Rate Rises in Third Quarter
14 Oct, 2008, New York, NY
Cushman & Wakefield, the global commercial real estate services firm, today released third quarter statistics for the U.S. commercial real estate market that show an increase in the national office vacancy rate to 10.6 percent from 10.2 percent at the end of the second quarter. The most significant factor in the rise was the increase in the sublease vacancy rate, which rose to 1.5% at the end of September, from 1.2% at the end of June.
The rise in vacancy coincides with a 13.6 percent decline in office leasing activity, which totaled 53.4 million square feet through the end of the third quarter, compared to 61.8 million square feet for the same time last year. Net absorption, which is either a positive or negative measure of the change in occupied space, is negative 9.4 million square feet year-to-date. For the same period last year, absorption was positive 11.7 million square feet.
Despite the trend, average asking rents continued to rise, reaching $40.95 per square foot at the end of the quarter, compared with $40.19 from the end of June.
During the three months ended in September, 19 of 30 U.S. central business districts tracked by Cushman & Wakefield experienced vacancy rate increases, while 11 markets experienced vacancy rate declines.
At the end of the third quarter, the lowest vacancy rates in the nation were in Boston, Mass., at 7.0 percent, New York, N.Y., at 7.4 percent, Washington, D.C., at 7.9 percent, New Haven, Conn., at 8.0 percent, and Portland, Ore., at 8.5 percent.
The largest three-month vacancy rate declines were in Oakland, Calif., to 14.2 percent from 15.4 percent, Dallas, Texas, to 26.5 percent from 27.4 percent, and Portland, Ore., to 8.5 percent from 9.1 percent.
The largest vacancy rate increases for the same period were in Palm Beach, Fla., to 18.8 percent from 16.2 percent, Baltimore, Md., to 13.5 percent from 11.0 percent, and Bellevue, Wash., to 9.5 percent from 7.1 percent.
"The slowdown in leasing activity year-over-year has largely been driven by uncertainty in the broader global economy," said Maria Sicola, executive managing director and head of Research for Cushman & Wakefield.
"Combined with new construction completions and negative absorption, the slower leasing volume has driven vacancies higher in a majority of central business districts," Ms. Sicola added.
"Rising unemployment year to date, and the more recent impact of issues affecting the banking and financial services sector, have caused many occupiers to reevaluate their long-term space requirements prior to making commitments," she said. "We expect average asking rents to show statistical declines by the end of this year, and vacancies to continue to rise through at least the first three quarters of 2009."
Cushman & Wakefield expects 15 million square feet of new office construction to be completed in major U.S. cities throughout 2009. So far this year, 6.9 million square feet of new construction completions have been added to the market, compared to 7.6 million square feet of construction completions through the third quarter of 2007.
The most active markets for new construction year-to-date include New York, with more than 2.1 million square feet, Washington, D.C., with 1.2 million square feet, Bellevue and Seattle, Wash., with 978,000 square feet and 518,000 square feet, respectively, and Chicago, with 439,000 square feet.
LOWEST VACANCY RATES: 3Q ‘08
HIGHEST AVERAGE RENTS: 3Q ‘08
Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. Founded in 1917, it has 227 offices in 59 countries and more than 15,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within four primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, valuation services, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, and Consulting Services, including business and real estate consulting. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at www.cushmanwakefield.com.