Office Vacancies At Lowest Level In Three Years
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Office vacancies in American cities dropped to the lowest rate in more than three years in the second quarter, with San Francisco, Miami, and Washington increasing occupancies amid an improving economy.
The vacancy rate for central business districts in American cities fell to 13.7% from 14.2% in the previous three months and 15% a year earlier, according to data provided by New York-based real estate services provider Cushman & Wakefield. Last quarter’s vacancy rate was the lowest since 2002’s first quarter, when it was 13.2%.
Companies are leasing additional office space as they add jobs or prepare to hire workers, giving a boost to landlords. The jobless rate last month dropped to the lowest since September 2001, according to the Labor Department. The average office rent in the second quarter was $25.17 a square foot, up from $24.73 a year earlier and $25.04 in the previous three months.
“It has been the fact that we’ve been adding jobs, usually 200,000 a month,” a senior managing director for research services at Cushman, Maria Sicola, said. As for available office space, “it’s been the classic supply-demand paradigm. We haven’t seen as much construction lately.”
Washington’s central business district had the lowest office vacancy rate in the country, dropping to 7.6% from 8.1% a year earlier. The rate, however, was more than the 7.5% rate in the first quarter – an indication, along with a decline in leasing activity, that occupancies may not increase much further, Ms. Sicola said.
“The demand is starting to drop off,” she said.
Vacancies declined in the second quarter in Midtown Manhattan, which fell to 9.2% from 11.3% a year earlier. Other cities where vacancies declines included downtown Los Angeles, which declined to 15.9% from 17.7%; and Orange County, Calif., which dropped to 10.5% from 15.9%. Rents rose in each of the three areas in the quarter.
The low rate has led to a construction boom in Washington, one of the few places to see such a surge. For the past few years, 2 million to 3 million square feet of office space has been added to the market each year, Ms. Sicola said. Another 2 million square feet is scheduled to come on line this year, followed by 3.7 million square feet next year before dropping off to 500,000 square feet in 2007, she said.
