Office Vacancy Rate Keeps Climbing

By ANTON TROIANOVSKI
Wall Street Journal

Vacant office space continued to accumulate in the second quarter, the latest indication that businesses aren't planning significant hiring in the near future.

Office buildings across the U.S. lost 1.8 million square feet of occupied space in the quarter, pushing the national office vacancy rate to 17.4%, the highest level since 1993, according to New York-based research firm Reis Inc.

While the drop in occupied space was much smaller than in previous quarters, analysts said companies' continued reduction of office space meant they still lacked confidence in economic recovery.

Landlords responded to rising vacancies by reducing rents for the seventh straight quarter. Effective rent, which is rent including concessions, declined 0.9% during the second quarter to an average of $22.01 a square foot a year. Effective rent peaked at nearly $25 per square foot in the second quarter of 2008.

"The fate of office properties will depend largely on how well the U.S. economy and labor markets fare amid what appears to be a recovery that comes in fits and starts," said Reis economist Ryan Severino.

Job growth and office-space use are closely intertwined. While some major users of offices, such as federal regulatory agencies, have been expanding, big banks and corporations have lagged behind in increasing their real-estate footprint, according to some analysts. That is a sign that these larger companies have been slow to return to their pre-recession staffing levels, a contributing factor to the persistently high U.S. unemployment rate.

Across the 82 metropolitan areas tracked by Reis, the total amount of occupied office space has dropped since early 2008 by 133 million square feet—the size of 2,300 football fields.Link to complete article