US office vacancy rate hits 16-year high

NEW YORK: The US office vacancy rate in 1Q reached its highest level in 16 years, but the decline in rents eased and crept closer to stabilisation, according to a report by real estate research firm Reis Inc.

The US office vacancy rate rose to 17.2%, a level unseen since 1994, as the market lost about 11.6 million net sq ft of occupied space during 1Q, according to the report released on Monday, April 5. The US vacancy rate inched up 0.2 percentage points from a quarter earlier and was 2% higher than a year ago.

"As labour markets stabilise, we expect occupancies and rents to require another 12 to 18 months before showing signs of improvement, given typical lags in commercial real estate," Reis director of research Victor Calanog said in a statement. "Even as occupancy continues to deteriorate, we're observing signs of renewed leasing activity across different metros."

The US office vacancy rate hit a cyclical low of 12.5% in 3Q2007.

Rental rates fell an average of 0.8% in 1Q, a less steep decline than seen last year. Asking rent fell 4.2% from a year earlier. Factoring months of free rent and landlord contributions to space improvements for each tenant, effective rent was down 7.4% from a year earlier.

Both asking and effective rent were off 0.8% from 4Q2009. The fact that effective rent is no longer falling at a greater rate than asking rent is an indication that landlords may have offered enough concessions to stimulate leasing activity. -- Reuters