U.S. Office Market Sees Positive Absorption For First Time Since 2007
12 Jan, 2011, New York
Cushman & Wakefield today released year-end 2010 statistics for the U.S. office market that show positive overall absorption in U.S. central business districts (CBDs) for the first time since 2007.
The overall absorption rate, a measure which indicates the net change in occupied space, was positive 2.2 million square feet at the end of 2010, a 106.5 percent increase in occupied space from the negative 33.5 million square feet of absorption at year-end 2009. It was also the first time U.S. CBDs charted positive absorption since the 11.6 million square feet of positive absorption at the end of 2007.
"Positive absorption is a promising sign for the U.S. office market's recovery," said Maria Sicola, executive managing director and head of Americas Research for Cushman & Wakefield.
Increases in leasing activity and limited new construction contributed to the increase in absorption. Overall leasing activity for U.S. CBDs totaled 62.4 million square feet at the end of 2010, a 26.3 percent increase from the 49.4 million square leased in 2009. During the fourth quarter, 16.9 million square feet was leased in U.S. CBDs, making it the most active period since the second quarter of 2008, when 19.9 million square feet was leased.
Meanwhile, new construction remained limited. Just 7.5 million square feet of new office space was completed in 2010, a 40 percent decrease in construction from the 12.4 million square feet completed in 2009, and the lowest yearly total since 2005, when 5.2 million square feet was completed.
"Limited new construction has kept U.S. vacancy rates from reaching the historic highs of previous recessions," said Ms. Sicola. "Looking forward to this year, restricted new development will play a major role in sustaining our recovery."
Both factors also led to further declines for the U.S. CBD overall vacancy rate, which declined to 14.4 percent at year-end 2010, down 0.3 percentage points from 14.7 percent at the end of the previous quarter. The fourth quarter of 2010 marked the third consecutive quarter of declines for the U.S. CBD overall vacancy rate, which reached its peak at 15 percent in the first quarter of 2010. Of the 31 CBDs tracked by Cushman & Wakefield, vacancy rates declined moderately in 19, with the largest quarter-over-quarter declines in Orange County, Calif., which declined to 22.6 percent from 23.8 percent; Fairfield County, Conn., which declined to 23.1 percent from 24.2 percent; Portland, Ore., which declined to 10.5 percent from 11.6 percent; Denver, which declined to 14.6 percent from 15.7 percent; and Palm Beach, Fla., which declined to 24.0 percent from 25.0 percent.
Despite increases in activity and declines in vacancy, rental rates remained stagnant. The overall rental rate for U.S. CBDs was $36.43 per square foot at the end of 2010, a $0.09 decrease from $36.52 at the end of the third quarter. Fifteen of the 31 CBDs tracked by Cushman & Wakefield saw rental rates increase quarterly - though none more than $1.00 per square foot. Rental rates declined in 16 of the CBDs - also with none more than $1.00 per square foot quarter-over-quarter.