Office Sector Shows Slow but Steady Progress
The office sector in the U.S. continues to experience gradual leasing improvements, with vacancies falling for the seventh consecutive quarter, according to the Second Quarter 2012 U.S. Office Trends Report released July 13 by commercial real estate services provider Cassidy Turley.
The report noted that net absorption of U.S. office space in the second quarter increased to 11.1 million square feet, up from 7.8 million square feet the previous quarter, while the office vacancy rate improved 10 basis points to 15.8 percent. However, the construction of new office buildings totaled only 39 million square feet at the end of June, which is two-thirds below the typical rate.
“The office sector is simply mirroring the slow trajectory of the economic recovery,” Cassidy Turley’s Chief Economist Kevin Thorpe said in a news release. “It’s far from robust, but given the pullback from the construction industry, even minimal demand is enough to drive vacancy down.”
By region, net absorption in the South increased to 7.6 million square feet in the second quarter, up from 2 million square feet the previous quarter; the Northeast rose to 993,000 square feet, up from 768,000 square feet; and the Midwest increased to 779,000 square feet, up from 659,000 square feet. However, net absorption in the West fell to 3.7 million square feet in the second quarter, down from 4.5 million square feet the previous quarter.
The vacancy rate in the South fell by 30 basis points to 14.7 percent in the second quarter compared to the previous quarter; the West dropped 20 basis points to 15.4 percent; and the Midwest inched down 10 basis points to 19 percent. However, the vacancy rate in the Northeast rose by 10 basis points to 15.6 percent.
The report noted that average asking rents in the U.S. logged in at $21.70 per square foot in the second quarter, up five cents from the previous quarter and up 1.5 percent year-over-year.
“The rent growth is still largely concentrated in the Class-A segment of the market,” Thorpe added. “This is quite typical of a recovery cycle. Tenant demand shifts decidedly to high-quality buildings, and then eventually demand spreads to lower-grade properties.”
Download Cassidy Turley’s Second Quarter 2012 U.S. Office Trends Report.