Jul
30

U.S. Office Market Softens in Q2, According to Colliers International

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July 28, 2008

The United States office market hit the mid-point of 2008 on a lackluster note, as the Q2 vacancy rate increased 27 basis points to clock in at 13.24 percent, according to the Q2 office report from Colliers International, a leading global real estate services firm.

This marks the third consecutive quarter of increased vacancies, Colliers said, and the slowdown in office space demand is consistent with a more sluggish national economy and job losses, particularly in markets tied to housing or financial services. Nationally, Class A vacancy rates increased half a percentage point in both downtown and suburban markets — from 12.19 percent to 12.69 percent — while B and C class vacancy rates increased a more muted 8 basis points from 13.63 percent in Q1 to 13.71 in Q2.

Of the markets surveyed by Colliers, 18 central business districts (CBDs) saw a drop in vacancies, while 33 saw a spike. In the suburbs, 16 markets posted declining vacancy, while 38 experienced a jump.

Absorption, or the change in occupied space, continued its downward trajectory during the second quarter, measuring negative 1.4 million square feet (msf) [-3.7 msf in Q1]. Alongside negative Q2 absorption, another 19.4 msf of new supply was delivered in the April through June period — consistent with the amount of new supply brought on during Q1. As for this quarter’s new construction — almost 85 percent of it occurred in the suburbs.

In terms of rents, downtown Class A lease rates held steady during the first quarter, while suburban rents dropped 3.7 percent. From the year-ago quarter, downtown lease rates have jumped nearly 7.6 percent and suburban rents have increased around 2 percent. Class A downtown rents now average $49.40 (psf), and for suburban office space, the national average rent now comes in at $27.72 psf.

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