U.S. Office Market Slows Down in Third Quarter
The housing slump and the credit squeeze took a toll on the office market in the third quarter, according to Grubb & Ellis.
The housing slump and the credit squeeze took a toll on the office market in the third quarter, according to Grubb & Ellis.
The vacancy rate was unchanged from the second quarter at 13.0 percent, ending a tightening cycle that lasted 13 consecutive quarters.
Vacancy was lowest in Manhattan at 4.9 percent and highest in Detroit at 21.7 percent among the major markets tracked in detail, according to Grubb & Ellis. Over the past four quarters, vacancy fell most sharply in San Mateo (the San Francisco Peninsula), Houston and Austin along with a handful of smaller markets.
Vacancy rose most sharply in Orange County, Palm Beach County and the Inland Empire (the Riverside area east of Los Angeles), all of which have a high percentage of office tenants related to the weak housing sector.
The average asking rental rate of $35.49 per square foot per year, gross, for Class A space was up 2.6 percent for the quarter and 13.2 percent year-over-year, according to Grubb & Ellis.
Net absorption in the first quarter totaled 15.7 million square feet, consistent with a moderately expanding market but at the low end of the recent range.
Grubb & Ellis forecasts that leasing activity may slow a bit in 2008 as tenants review their expansion plans. Asking rent growth may decelerate over the next few quarters along with a softening of effective rents in some areas. The vacancy rate could increase slightly as net absorption muddles through and the construction pipeline continues to deliver product started over the past 18 to 24 months.
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