U.S. Office Market Marches Forward Despite Growing Uncertainty in Q3October 25, 2007
COLUMBIA, SC – October 25, 2007 – The U.S. office market showed modest gains in the third quarter, closing the July through September period with the average vacancy rate dropping from 12.38 to 12.24 percent, according to a report by Colliers International, a leading global real estate services firm.
Alongside the slight drop in vacancies, third quarter office absorption (the change in occupied space) totaled 18.9 million square feet (msf), off slightly from the second quarter’s 20.7 msf absorption – bringing the year-to-date total change in occupied space to 51.8 msf. Compared with this time last year, absorption has fallen short – since by the end of Q3’06, YTD absorption clocked in at 70.1 msf.
Central business district (CBD) vacancy rates dropped from 10.86 percent in Q2 to 10.62 percent in Q3. Indeed, 35 of the CBDs surveyed by Colliers recorded a decrease in vacancy over the past quarter, while 27 markets recorded an increase in downtown office vacancies. For suburban markets, quarter-over-quarter vacancy rates dropped from 13.14 to 13.06 percent. Twenty eight suburban markets surveyed by Colliers reported an increase in vacancy, while 27 reported a decline.
Vacancy rates for top tier office space went from 11.11 percent to 10.97 percent. Meanwhile, vacancies for more economic office space inched down 0.13 percentage points to 13.41 percent.
“Bearing in mind the plethora of bad news during the third quarter, the office market continued to act much like the Energizer Bunny, with demand humming along and rents ratcheting up yet again,” remarked Ross Moore, senior vice president and director of market and economic research at Colliers International in Boston, MA. “We are clearly worried about the slowdown in housing and the fallout from this summer’s credit crisis, but to date, the office market hasn’t given up any of the gains made over the past several years”.
In terms of new supply, another 17.6 msf was added to the office market during Q3 2007, and 102.6 msf is currently under construction.
As for rents, both downtown and suburban Class A rents increased compared to the previous quarter, with a 3.2 percent rise in CBD rents and a 3.5 percent increase in the suburbs. Downtown rents have increased 15.4 percent year-to-date, while suburban market rents have increased 9.3 percent.
Class A downtown rents in the U.S. averaged $47.41 per square foot (psf) during Q3, ranging from a low of $14.95 in Little Rock, AR to a high of $95.23 psf in Midtown Manhattan. The national average rent per square foot for suburban office space was $28.24.
Top 10 Under Construction – Downtown Market – US
MARKET UNDER CONSTRUCTION (SF)
1 New York, NY – Downtown Manhattan 4,600,000
2 Chicago, IL 4,275,000
3 Charlotte, NC 3,731,000
4 New York, NY – Midtown Manhattan 3,530,000
5 San Francisco, CA 1,827,000
6 Philadelphia, PA 1,253,000
7 Denver, CO 1,200,000
8 Washington, DC 1,157,000
9 Sacramento, CA 800,000
10 Nashville, TN 789,000
Top 10 Under Construction – Suburban Market – US
MARKET UNDER CONSTRUCTION (SF)
1 Phoenix, AZ 6,437,000
2 Dallas/Ft. Worth, TX 6,256,000
3 Atlanta, GA 5,375,000
4 Los Angeles, CA 4,281,000
5 San Diego County, CA 3,448,000
6 Raleigh/Durham/Chapel Hill, NC 2,382,000
7 New Jersey – Central 2,254,000
8 Houston, TX 2,117,000
9 Orlando, FL 2,095,000
10 Sacramento, CA 2,089,000
About Colliers Keenan
Colliers Keenan is South Carolina’s largest brokerage and third party property management firm, and the only company with offices in Charleston, Columbia and Greenville. More than sixty Colliers Keenan professionals are engaged in sales, leasing, property management, consulting and corporate real estate services. Colliers Keenan also provides construction management through its affiliate, LCK Construction Services and mortgage brokerage through another affiliate, Southern Capital Mortgage.
Colliers Keenan is an owner/member of Colliers International, one of the largest global real estate service organizations, with more than 10,100 employees in 266 offices in 56 countries. Through this strategic alliance, Colliers provides expert local real estate services across the world.