Office Vacancies Increase, but Many Rents Endure

It’s no surprise office property sales are down. While the 77 percent skid in the first half of the year from the same period last year was largely attributable to The Blackstone Group’s $39 billion blockbuster acquisition of Equity Office Properties Trust and the resale of many Equity Office assets to other parties last year, office sales during the first half of this year tallied just $30 billion, according to Grubb & Ellis Co.’s second quarter “Capital Markets Update.” And CBD properties accrued at a cap rate of 6.1 percent, an increase of 30 basis points from the same period one year ago, with suburban properties seeing a 7 percent cap rate, a 50-basis-point year-over-year rise. Second-quarter vacancy rates for the office market hit 14 percent, up 100 basis points compared with the same period a year ago. Class-A average asking rental rates, however, ascended: to $50.25 per square foot per year for CBD space, up 6.5 percent year-over-year, and $29.35 for suburban space, an increase of 4.3 percent from the same period a year ago.Such positive news meshed with the third quarter PricewaterhouseCoopers Korpacz Real Estate Investor Survey, which found that although leasing activity has decreased and vacancies have risen, declining tenant demand has not yet manifested itself as notable distress for most markets. Overall, in fact, the report found that the CBD markets are holding up, as are suburban markets such as those surrounding Hartford, Philadelphia and Seattle, although weakened tenant demand has led to a rise in suburban office vacancies across markets like California’s Inland Empire and Orange County, as well as Orlando, with each reporting huge year-over-year vacancy gains.