Posts Tagged ‘office market’

Office Rents Could Be Close to Hitting Bottom

Tuesday, March 23rd, 2010

Limited new supply and improving employment numbers could signal office rental rate rise.  A combination of limited supply growth and anticipated stabilization of the jobs market could mean that office rents may return to positive growth sooner rather than later.  That’s the opinion of Victor Calanog, a researcher at Reis, Inc., one of the nation’s leading providers of commercial real estate performance information and analysis.

According to Calanog, “Office properties took the brunt of the recession last year, with rents falling at record rates.  Effective rents cratered by 8.9 percent, the largest decline on record in almost 30 years of Reis history.  Hidden amidst the devastation were signs that office occupancies were faring better than other property sectors.  While multifamily and retail vacancies were hitting highs unseen in two decades or more, the national office vacancy rate was 17 percent at the end of 2009, the highest level since 2004.”

The percentage of office properties that had reduced their rents hit 86 percent in the 4th quarter of 2009.  Calanog predicts that office rents in Washington, D.C., could be higher than those in Manhattan by the end of 2010.

The good news is that recent labor market figures are encouraging, with the unemployment rate holding steady at just under 10 percent nationally.  Wall Street firms have started hiring again and job losses in New York were not as dire as predicted.  “Unexpected events can derail this recovery, and economic growth is expected to be fragile for the near term, but as more positive news emerges we may be on track to seeing rents grow as early as next year,” Calanog said.  “If this is the case, transaction volume and prices may pick up quickly to capitalize on the next upswing.”

Suburban Office Vacancies Rise

Tuesday, July 15th, 2008

According to a recent Crain’s Chicago Business article, suburban office vacancy rates shot up to 13.1 percent during the second quarter of 2008.  That is the highest level in more than two years. According to the commercial real estate services firm, Transwestern Commercial Real Estate, the vacancy rate is at its highest level since the first quarter of 2006, when it rose to 13.7 percent.  There’s no doubt that demand for suburban office space is in lockstep with job growth or loss; we’re not seeing any job growth in the suburbs right now.

Class A landlords are more likely to accept lower rent deals right now than was true in the last year, but this can be risky.  This has the effect of also reducing the building’s value, because this is a function of the in-place income stream.  Sometimes, it is better to pass on a low rent deal and simply “assume” accepting a higher rent to protect the building’s value.

The sales market has been robust over the past several years, so protecting value has been a priority.  With credit now being largely unavailable, building owners are no longer in the sale market because buyers are unwilling or unable to pay top dollar.  Because we don’t know when the office market will stabilize and since selling isn’t viable at present, landlords may take that lower rent to boost occupancy.

A respectable number of transactions will be completed this year, but only because there is so much low-cost sublease space available.  Additionally, some industries are likely to make positive contributions to the suburban office scene.  Companies providing goods or services to hospitals, physician practices and the senior-housing market are experiencing growth, as are data-center operations and some engineering firms, especially those working with energy production or conservation.