By US Daily Review Staff.
The U.S. office sector continues to experience a gradual improvement in leasing fundamentals, with vacancy falling for the seventh straight quarter, according to preliminary figures released by Cassidy Turley, a leading commercial real estate services provider in the U.S.
Net absorption of office space, which measures changes in occupied space from one period to the next, increased to 11.1 million square feet (msf) in the second quarter of 2012, up from 7.8 msf in the previous quarter. The U.S. office vacancy rate improved 10 basis points (bps) to 15.8%. U.S. new-office-building construction totaled 39 msf at the end of June, which is two-thirds below the normal level of new supply.
“The office sector is simply mirroring the slow trajectory of the economic recovery,” said Kevin Thorpe, Chief Economist at Cassidy Turley. “It’s far from robust, but given the pullback from the construction industry, even minimal demand is enough to drive vacancy down.”
Average asking rents inched up 5 cents from the previous quarter to $21.70 in the second quarter of 2012, a 1.5% year-over-year increase.
“The rent growth is still largely concentrated in the Class-A segment of the market,” Mr. Thorpe said. “This is quite typical of a recovery cycle. Tenant demand shifts decidedly to high-quality buildings, and then eventually demand spreads to lower-grade properties.”
According to Real Capital Analytics, office sales volume totaled $4.1 billion in May, down 31% from a year earlier. Year-to-date sales volume totals $13.2 billion, up 72% from the same period one year ago.
“The recent slowdown in sales reflects the growing gap between buyer and seller,” Mr. Thorpe commented. “Buyers want the growing uncertainty related to the euro-crisis and the looming fiscal cliff priced in, while sellers see these as low-probability scenarios.”
Regional highlights for U.S. office markets include:
- In the South, net absorption increased to 7.6 msf in the second quarter of 2012, up from 2 msf in the previous quarter. Vacancy rates in the South fell by 30 bps to 14.7%
- Net absorption in the West registered at 3.7 msf, down from 4.5 msf in the previous quarter. Vacancy rates in the West fell 20 bps to 15.4%.
- In the Midwest, net absorption increased slightly to 779,000 square feet, up from 659,000 square feet in the previous quarter. Vacancy rates in the Midwest inched down 10 bps to 19%.
- The Northeast recorded negative absorption of 993,000 square feet, down from 768,000 square feet in the previous quarter. Vacancy in the Northeast rose 10 bps to 15.6%.