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Monday, January 07, 2013

Reis: Office Vacancy Rate declines slightly in Q4 to 17.1%

by Calculated Risk on 1/07/2013 08:15:00 AM

Reis released their Q4 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined slightly to 17.1% from 17.2% in Q3.

On absorption from Reis Senior Economist Ryan Severino:

During the fourth quarter 3.691 million square feet were absorbed. This represents a decrease versus the 4.819 million square feet that were absorbed during the third quarter and the 4.842 million square feet that were absorbed during the fourth quarter of 2011. However, this is the eighth consecutive quarter of positive net absorption.
On new construction:
3.170 million square feet were delivered during the fourth quarter, versus 3.821 million square feet during the third quarter. This is also a slowdown compared to the 3.653 million square feet of office space that were delivered during the fourth quarter of 2011. For calendar year 2012, 12.025 million square feet were completed. This is a decline from the 15.164 million square feet that were completed during 2011.
On rents:
Asking and effective rents both grew by 0.8% during the fourth quarter. This exceeded the third quarter performance when asking and effective rents both grew 0.2%. This was the ninth consecutive quarter that asking and effective rents have increased. This was the strongest performance of both measures since mid‐2008 before the downturn in the office market.
Office Vacancy Rate Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis is reporting the vacancy rate declined in Q4 to 17.1%, down slightly from 17.2% in Q3, and down from 17.4% in Q4 2011. The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010, and Q1 2011.

As Severino noted, net absorption was still positive, even though demand for office space was low - because there is so little new construction.  This remains a sluggish recovery for office space, and new construction will stay low until the vacancy rate falls much further.