The Expert: The Rest of 2009

The first quarter was very telling. The national office vacancy rate moved almost a full percentage point higher to register 14.8 percent, occupied space fell by 26.7 million square feet and new office development, both completions and construction that is still under way, dropped precipitously. The same pattern is almost assured for the balance of the year.The vacancy rate is expected to rise by one percentage point or more in each of the remaining quarters through the end of the year, and occupied space is anticipated to shrink 25 million square feet. Tenants are looking to reduce their real estate costs as quickly as they can in a variety of ways:• putting excess space on the sublease market• not renewing leases as they expire• staying put but downsizing into smaller premisesMuch discussion has centered on the surge in sublease space, but for the past several quarters, sublease has been increasing by 8 million square feet per quarter, considerably less than in 2002 and 2003, when it was increasing by 20 million square feet.  Interestingly, if Manhattan is excluded, sublease space only increased 6.5 million square feet in the first quarter.Ross Moore is executive vice president & director of market and economic research for Colliers International USA.