Decline in Office Vacancy Continues

The nation’s office vacancy rate is increasing and more landlords are growing more anxious to fill empty space, as concessions grow more aggressive and lease rates tumble in a severely depressed market.

From Reuters:

The U.S. office market vacancy rate reached 15.9 percent in the second quarter, its highest in four years and rent fell by the largest amount in more than seven as demand from companies and other office renters remained weak, real estate research firm Reis said Inc.

The weak demand helped push up the average weighted U.S. office vacancy rate 0.70 percentage points during the quarter and 2.7 percentage points compared with a year ago, according to the report released on Tuesday.

Factoring in rent-free months and improvement costs to landlords, effective rent — the net amount of cash landlords take in — fell 2.7 percent in the quarter to $23.42 per square foot. The second-quarter drop was more severe than the first quarter’s 2.3 percent, dampening hopes the office market is bottoming out, Reis said.

Of the 79 markets that Reis tracks, vacancy rose in 65 and effective rent fell in 72, indicating the weakness is widespread.

emphasis added

The number of property owners facing financial challenges will likely increase in the 3rd and 4th q, as a result of rising vacancies. Reis forecast is for the U.S. office vacancy rate to top out at 18.2% in 2010 and for rent to continue to fall through 2011.

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