Office Vacancy Declines to 16.1 Percent

Broader job growth has been slowing through the half point of the year and going into the third quarter. Many companies have also put expansion plans on hold, waiting to see what happens in the national and local economies. Professional and business services have provided a silver lining to the trends, maintaining demand for office space on a positive curve.

Net absorption of office space—a measure of demand—is projected to be 7.6 million square feet in the third quarter, and close the year at 24.1 million square feet. In response, completions of new office buildings have been trailing behind, constrained by the tight lending conditions of the post-recession financial landscape. Supply of office space is likely to total 5.7 million square feet in the third quarter and 13.7 million square feet for 2012.

With a projected gap of 10.3 million square feet between demand and supply of space in 2012, vacancy rates have been declining. Office availability for the third quarter is expected to decline to 16.1 percent. The downward trend is moving national vacancies towards 16.0 percent by the end of the year. The local markets with the lowest availability rates are Washington, D.C., with a vacancy rate of 9.4 percent, New York City, at 10.0 percent, and New Orleans, 12.8 percent. At the other end of the spectrum, Detroit, Phoenix and Las Vegas continue to slog it through rates above 25.0 percent.

Rent growth for office space will stay positive in 2012, although not as robust as predicted earlier, due to the general slowdown in the economy. Rent is expected to rise 2.0 percent for the year, a still-noticeable improvement over last year’s 1.6 percent.