Thursday, January 03, 2019

Reis: Office Vacancy Rate unchanged in Q4 at 16.7%

by Bill McBride on 1/03/2019 12:46:00 PM

Reis reported that the office vacancy rate was at 16.7% in Q4, unchanged from 16.7% in Q3 2018. This is up from 16.4% in Q4 2017, and down from the cycle peak of 17.6%.

From Reis Economist Barbara Denham:

The office vacancy rate was flat in the quarter at 16.7%. At year-end 2017 it was 16.4%, while at year-end 2016 it was 16.3%.

Both the national average asking rent and effective rent, which nets out landlord concessions, increased 0.7% in the fourth quarter. At $33.43 per square foot (asking) and $27.13 per square foot (effective), the average rents have increased 2.6% and 2.7%, respectively, from the fourth quarter of 2017, barely above the rate of inflation: 2.5%.

Following three quarters of decelerating occupancy growth, net absorption rose to 7.3 million square feet. The fourth quarter tends to see the highest activity in both office completions and leasing; one year ago, net absorption was 7.6 million square feet, higher than the previous quarters of that year. For construction, office inventory expanded by 10.4 million square feet in the fourth quarter, above the previous quarter’s 8.9 million square feet but below the three prior quarters’ average of 11.9 million square feet.
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Completions will be higher in 2019 – close to 50 million square feet including 6.7 million square feet in Hudson Yards alone – while office employment is expected to decelerate. This should push vacancy rates up a bit, but rent growth should remain positive and in line with recent growth rates.
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 reported the vacancy rate was at 16.7% in Q4.  The office vacancy rate had been mostly moving sideways at an elevated level, but has increased slightly recently.

Office vacancy data courtesy of Reis.