According to real estate research firm Reis Inc, the U.S. office vacancy rate touched a five-year high in the third quarter. The national vacancy rate stood at 16.5 percent, 0.6 percentage higher than the previous quarter.
"The last time we saw vacancies in the mid-16s was at the end of 2004," noted Victor Calanog, director of research at Reis.
The dismal vacancy rate
The present vacancy rate is 2.3 percentage points higher than the vacancy rate in the comparative period last year. Thus the gains made during the commercial real estate boom have been washed away.
"So in seven quarters, the current recession has almost undone all additions to occupied space that occurred during the years when office rents peaked," Calanog said.
The office vacancy rate increased in 72 of the 79 primary metropolitan areas, up from 66 primary metropolitan areas that witnessed an increase in the vacancy rate last quarter.
U.S. has also witnessed the worst joblessness rate since 1983. The unemployment rate stood at 9.8 percent in September, and as many as 7.2 millions jobs have been lost since the onset of the current economic recession.
The BBREIT Office Property Index of 14 stocks has also shed 14.31 percent in the last one year.
Rents at lowest ebb
In addition, the amount actually paid by tenants in the United States dipped 8.5 percent, which is the highest year-over-year drop since 1995.
“The decline in effective rents really accelerated after the fall of Lehman Brothers. Tenants will continue shedding occupied space as jobs are lost,” Calanog opined.
Calanog further said, “Weakness in rents is not concentrated in just a few cities. We have yet to observe clear, systematic evidence that the office market is bottoming out.”
Rent demanded by the landlords dropped 1 percent from the last quarter to $28.15 per square foot. Effective rent, after factoring months of free rent and other perks, fell 2.2 percent from the second quarter to $22.91 per square foot.
Experts opine that the huge difference between the asking rent and effective rent is likely to cause the rents to decline further.
Calanog opined, "At some point they will need to lower asking rents significantly in order to bring prospective tenants in the door, even before talks about concessions are initiated. We have yet to observe clear, systematic evidence that the office market is bottoming out and has begun to recover.”
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