It’s never the same thing.
In the ’80s, the vacancy rate sounded alarms, warnings the industry ignored. The building binge of that decade left a hangover of double digit vacancy rates and a real estate slump that some called a depression.
During the boom of the ’90s, as healthy absorption sent the vacancy rate back into single digits, everyone worried about speculative overbuilding. But tight discipline kept new construction in tight check. All eyes were on the vacancy rate.
At least, one sort of vacancy rate.
As national vacancy numbers continued to decline, another vacancy rate was creeping up: unused space corporations were paying rent on. It wasn’t just the dot coms that had leased more space than they needed in order to be ready for anticipated growth. Nor is it a bad idea to have space ready when — even before — it’s needed. Vacant space is expensive, but not as expensive as missing a market opportunity because of a delay in finding space.
When the Internet bubble burst and the economy weakened, some organizations concluded they had leased more space than they needed. Other businesses laid off workers and found they too had excess space.
The fact that corporations have unused space isn’t new. What is new, compared to past real estate downturns, is the speed and skill with which corporations get space back onto the market. It’s a double whammy — falling demand and, even with no construction, more available space.
Clearly, it would be useful to have a handle on the amount of unused space within corporations. For example, if the economy started to soften, the “hidden” vacancy rate could indicate how badly real estate would be hurt. What’s more, it could also be a leading indicator: Even in a healthy economy, a rising corporate vacancy rate might serve as a warning of possible trouble ahead. And if the “hidden” vacancy rate could be measured on a local level, all the better, since that’s where the impact would be greatest.
It would be a daunting challenge to gauge corporate vacancy rates. But the lesson of this real estate slump is that that number can’t be ignored.
