This article is from the Australian Property Journal archive
FUNDAMENTALS in the US office market remain weak despite leasing sentiment picking up in the third quarter, according to the latest report.
According to the Colliers International’s Q3 office report, vacancies rose half point to 16.0%. Downtown vacancy rate increased 37 basis points and the suburban vacancy rate jumped 66 basis points.
Absorption presented a relative bright-spot during the July through September period. While occupied space shrank during Q3, registering negative 17.7 million sq ft (msf), this decrease was less than the negative 25 msf posted in the first and second quarters of this year.
Colliers executive vice president Ross Moore said even though the overarching picture still looks bleak, there are glimmers of hope on the horizon.
“Leasing activity was up in nearly every market we surveyed, and we’re seeing a resurgence of confidence on a few fronts.
“A select group of tenants can now access the capital markets, and confidence in their own ongoing health has unleashed some pent-up demand for office space,” he added.
The report found Class A office buildings in downtown markets fared best in Q3, with 25 of the 56 CBD markets. Suburban markets were more lackluster, reflected by 18 of 55 suburban markets under study by Colliers with vacancy rates in excess of 20%.
Rental rates for office space continued their decline across all space classes in both suburban and downtown markets. Suburban Class A rents were down 1.6% during Q3 and 5.4% year-over-year (weighted average). Downtown Class A rents were down 2.7% in Q3 and 18.8% year-over-year (weighted average).
The weighted average downtown Class A rent stood at $40.09 per sq ft (psf) and the suburban Class A rent posted $26.95 psf at the close of the third quarter.
Moore said tenants are increasingly willing to go long on their leases, and the oft-predicted bearish scenario of skyrocketing sublease space never played out.
“While we’re nowhere near out of the woods, we feel confident that the office market has turned a corner and will be poised for improvement in the second half of 2010,” he continued.
New construction, total new Q3 supply was 16.8 msf, with 4.4 msf newly-completed in downtown markets and 12.4 msf newly-completed in the suburbs. This total amount of new office completions was 500,000 sq ft more than the amount delivered in Q2, and 1.4 msf more than the first quarter’s new supply.
An additional 51.0 msf is currently under construction, with 29.7 msf pending for downtown markets and 21.3 msf for the suburbs.
Australian Property Journal
