Demand for U.S. Office Space Still Sluggish

As we start 2013, several reporting agencies have taken a look into the commercial real estate market and the demand for office space with a fairly consistent analysis: the office sector is still struggling for traction in the U.S. with occupancy rising at disappointing rates. The amount of occupied office space grew by 3.7 million square feet during Q4 2012, down from 4.8 million in both the third quarter and the year-earlier period, according to a report released by real estate research firm Reis Inc. Asking rents were up to an average of $28.46 per square foot, according to Reis, which looks at 79 metropolitan areas.

"Without a robust labor market recovery there will be no robust office market recovery," said Ryan Severino, senior economist for Reis. Severino explained that weak demand for space gives developers little reason to build, and expected that lenders will continue to impose more stringent requirements on developers before they will provide construction financing.

The cities with the tightest markets continue to be those with stronger technology or energy sectors in their economies. Rents in San Francisco, for example, rose 3.6%, the most of any of 79 markets, to $34.69 per square foot. The vacancy rate in San Francisco was 13.8%. Washington, D.C. has the tightest market of all at the moment, with a vacancy rate of 9.3%. But Severino expects New York to take that title soon as its increasingly important technology sector takes more space and as the government in Washington cuts employment.

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