Office Vacancy Reaches 3-Year High in Q1: Cushman

U.S. office vacancy rates for central business districts reached their highest level in three years during the first quarter, according to services firm Cushman & Wakefield Inc. Overall CBD vacancy jumped from 11.2 percent at the end of the 2008, to 12.5 percent in the first quarter of 2009.That reading is the highest since the first quarter of 2006, when it was 12.6 percent, but is still below its decade high of 15.5 percent in the second and third quarters of 2003, the report stated. The vacancy rise in the first quarter coincided with a 39.3 percent decline in overall office leasing activity in CBDs for the period, which totaled 10.6 million square feet, compared to 17.5 million square feet in the first quarter of 2008. Two additional factors that contributed to the rise in vacancy were new construction completions and a significant increase in available sublease space, the report stated.Cushman’s was not the only recently-released report detailing the current state of the office market. Marcus & Millichap Real Estate Investment Services expressed cautious optimism in its annual office sector analysis.“A strong recovery cycle between 2003 and 2007, coupled with the absence of runaway building during the period, positioned the office sector to withstand the current downturn,” said Hessam Nadji, CEO of research service for Marcus & Millichap, in the company’s 2009 National Office Report. “This will not prevent a sharp rise in vacancies in 2009, however, as the most extreme job losses in recent history impact the economy. Increasing sublease space and a loss of occupancy will be overriding themes this year as companies react to the escalation of the recession and credit crunch into a full-blown global financial crisis.” However, most attention remains focused on finding the depth of the downturn rather than looking for recovery indicators, Nadji said in the report. Nadji noted that “Unprecedented liquidity has been pumped into the system, but the infusion has yet to attain velocity as banks and consumers hoard cash. Government stimuli, despite some missed opportunities such as front-loading job-generating initiatives, will eventually help. Though financial market volatility will dominate the first half of the year, these initiatives should start to form a bottom in the second half, setting the stage for modestly positive readings in the latter part of 2010 and a demand-driven recovery beginning in 2011.” Dallas was the only market to experience a vacancy rate decline in the first quarter at 27.2 percent from 27.6 percent at the end of 2008. Atlanta and Orlando held steady at 17.4 percent and 21.1 percent, respectively, while four other markets–Philadelphia, Minneapolis, Palm Beach and Silicon Valley–experienced only slight increases of 0.2 percent or less, according to the Cushman and Wakefield report. The top five cities with the lowest overall vacancy rates in the nation at the end of the first quarter were: New Haven, Conn., at 9.2 percent; Washington, D.C., at 9.4 percent; New York City at 9.6 percent; Portland, Ore., and Philadelphia, each at 10.2 percent., the report stated. Considering Downtown Manhattan and Midtown South as individual markets within New York, the two submarkets each recorded the lowest vacancy rate in the nation at the end of the first quarter, of 8.1 percent. Downtown and Midtown South, with 88 million square feet and 65 million square feet of office space, respectively, would be the fourth and fifth largest office markets in the nation behind Midtown Manhattan, Chicago, and Washington, D.C.