Vacancies Rise in Many Southern Markets; New York City Nets Top Performance

While overall the U.S. office market’s vacancy rate experienced a 30-basis-point increase, hitting 14.3 percent for the third quarter, according to a third-quarter office market report from Grubb & Ellis Co., 47 markets saw their third-quarter vacancy rates rise while 12 realized declines, compared with 39 markets that increased and 20 that declined in the second quarter.Detroit notched the highest vacancy rate with 23 percent. Moreover, Phoenix, Austin, Las Vegas, Palm Beach County, Orange County and San Diego struggled, with each market experiencing a year-over-year jump in vacancy of at least 400 basis points, and California’s Inland Empire saw its vacancy almost double from the same period a year ago, increasing from 10.7 percent to 19.9 percent.At the other end of the spectrum, New York City pulled in the lowest vacancy among major U.S. markets, with 6.2 percent, an increase from its cyclical low in fourth quarter 2007 of 4.5 percent. Interestingly enough, Greenville, S.C.; Wichita, Kan; Pittsburgh; and San Francisco pulled in lower vacancy rates than the same period a year ago.While rents have held up, landlords have bolstered incentives and will likely have to cope with mounting pressure to reduce those rents in the coming months, according to a report from Colliers International titled “U.S. Real Estate: Caught in the Middle of a Credit Crisis and Faltering Economy.” The report contends, however, that most markets have not overbuilt, with new construction accounting for just 2 percent of inventory.