Colliers: U.S., Canada Office Markets Backslide in Q1

The United States office market continued its descent in the first three months of 2009, making it the worst quarter since the third quarter of 2001, according to a recently released Q1 office report from Colliers International. National office vacancies continued to grow, rising by 95 basis points, from 13.80 percent at year-end 2008 to 14.75 percent at the close of the first quarter of 2009.The report indicates that there has been an additional growth in space available for sublease. Nationally, total ready for use sublease space rose by 7.5 million square feet during the first quarter, registering 81.6 million square feet total, and representing 11.1 percent of total vacant office space. According to the report, leading CBD markets with the most levels of sublease space include Manhattan and Boston. And suburban markets with above-average levels of sublease space include the San Francisco peninsula, Northern Virginia, Fairfield County/Greenwich, Conn., and suburban Maryland.Rising vacancies were spread relatively evenly among CBD and non-CBD markets.  Across the country, vacancies in Class A buildings increased 1.02 percentage points – from 13.86 percent in the fourth quarter of 2008 to 14.63 percent in the first quarter of 2009. Meanwhile, the combined vacancy rate for Class B and C properties rose 88 basis points – from 13.84 percent in the fourth quarter of 2008 to 14.63 percent in the first quarter of 2009. Emphasizing the grimness of the current recession, all submarkets and space classes in the country registered negative absorption in the first quarter, the report states.  Also, there was a a considerate boost in the new supply during the first quarter. Colliers reports that 15.4 million square feet of new construction was completed in the January through March period, almost 70 percent of which occurred in the suburbs. And as for space under construction, at first quarter’s end, 83 million square feet of office space was being built across the country, compared with 94.2 million square feet at the end of the fourth quarter.Office rent rates fell in almost all markets surveyed by the firm.  In total, the downtown average Class A asking rate measured $43.36 per square foot, down 5.47 percent from year-end 2008. Furthermore, the firm also released a Canadian market report. Compared to some other major markets, the country’s real estate market remains relatively solid. However, Colliers said that recent job losses and stalled economic growth has had a huge impact on Canada’s office and industrial sectors.  Based on the report, sublet space has jumped during first quarter, and now accounts for 19.5 percent of total vacant office space across the country. The average national vacancy rate for downtown and suburban markets rose to 5.9 percent in the first quarter, up from 5.1 percent in the fourth quarter of 2008. Average downtown gross rents have fallen to $47.00 per square foot, from a high of $50.40 in the fourth quarter. Plus, the industrial markets experienced a hike in availability during the first quarter as interest diminished and new supply was distributed but was gradually absorbed. On a positive note, rental rates have remained stable during this period, driven mostly by western markets where a downturn has been slower to take hold. Toronto and Montreal, being more heavily weighted to distribution, warehousing and the auto industry, have endured the full impact of the industrial market downturn to date. Both cities however are expected to return to a more stable position in the next year or two.