Office Vacancy Rates Continue to Decline

A new report from Cassidy Turley, expected to be released in full on January 13, examines the U.S. vacancy rates through the fourth quarter of 2013 and the early news is promising. According to the company, vacancy rates continued to decline in most metropolitan statistical areas in Q4, with rents rising in over half of the country. Further, the report reveals that vacancy is now 220 basis points lower than its recessionary-peak of 17.3%.

"Office vacancy is clearly tightening, but at a rate that is much slower than past recoveries," said Kevin Thorpe, Chief Economist at Cassidy Turley. "Steady job growth and lack of new development has vacancy falling in 70% of the country, but the office sector is still adjusting to the new era of tenant downsizing and space efficiency. Rent growth is still being powered by energy-driven and tech-driven markets, but the rent recovery is clearly beginning to roll into more pockets of the country. Supply/demand fundamentals suggest the majority of the country will be pushing office rents upward by this same time next year."

The top 10 U.S. markets in terms of 2013 rent growth were:

San Francisco, with 11.8% rent growth;
New York, at 9.5%;
Denver, with 7.8%;
San Jose/Silicon Valley, with 7.3%;
Austin, with 7.0%;
Dallas, with 5.6%;
Salt Lake City, with 5.5%;
San Mateo County, at 4.9%;
Oakland-East Bay at 4.4%; and
San Diego, with 4.3% rent growth

For more news and information visit Blumberg Capital Partners.

NAR Says CRE Vacancy Rates Improving, Rents Firming

The National Association of Realtors (NAR) released its quarterly commercial real estate forecast this month indicating that all of the major commercial real estate sectors are seeing improved fundamentals. Lawrence Yun, NAR chief economist, commented on the Commercial Real Estate Market Survey saying vacancy rates are improving in all of the major commercial real estate sectors. "Sustained job creation is benefiting commercial real estate sectors by increasing demand for space," he said. "Vacancy rates are steadily falling. Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market where rents are rising the fastest."

An excerpt from the office markets summary:

Vacancy rates in the office sector are projected to fall from 16.4% in the current quarter to 16.0% in the first quarter of 2013.

The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.5%; New York City, at 10.0%; and New Orleans, 12.4%.

After rising 1.6% in 2011, office rents should increase another 1.9% this year and 2.4% in 2013. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is forecast at 20.1 million square feet in 2012 and 28.1 million next year.

NAR has made the Commercial Real Estate Market Survey available here. For more news and information, visit Blumberg Capital Partners.

Downtown Markets to Recover More Quickly Than Suburban Counterparts

A new Wall Street Journal article titled "Suburban Office Markets Trail Downtown Rivals" takes a look at the recovery and growth of the office markets in different areas, observing that it's likely going to take a longer time for suburban-office-building owners to rebuilt their tenancy rates compared to properties in downtown areas. According to data from Reis Inc., suburban office properties accounted for 70% of the 135 million square feet of previously occupied space that went vacant since the real estate downturn; many owners have tried to fill these gaps by sharply cutting rates to entice new tenants. Victor Calanog, research director of Reis, noted that "combined with more job functions being outsourced or mechanized, demand for suburban-office space will just not be as strong as before, unless landlords lower rents significantly. All of these factors imply lower returns for REITs focused on suburban-office space."

An excerpt from the article:

Fourth-quarter earnings reported by publicly traded real-estate companies over the past few weeks reinforced a trend that has been taking shape since economic recovery began: Vacancies continue to rise in some suburban buildings even as downtown properties fill up.

Downtowns are performing better partly because the suburbs were hit harder by the housing collapse, which caused the closings of mortgage lenders, home builders and other small businesses that tend to be in the suburbs. Also, there was more construction in the suburbs than downtowns during the boom.

Demand in some cities has improved, thanks to their success in revitalizing entertainment districts and attracting new retail and residential development.

For more news and information visit Bumberg Capital Partners.