By Ken Ashley
CHICAGO (July 9th, 2010)
Let the record reflect that the commercial real estate recovery has begun. In an excellent article yesterday, Bloomberg’s Daniel Taub quotes Maria Sicola, executive managing director and head of Americas research for Cushman & Wakefield discussing the signs of the office market shift. “Markets throughout the U.S. continue to strengthen” she said. It is”becoming strongly apparent that the national vacancy rate for CBDs has peaked.”
In the Cushman & Wakefield report which is the basis for the article, Sicola indicates that “office vacancies in U.S. central business areas fell in the second quarter from the prior three months, the first drop since 2007, as companies hired workers and took advantage of lower rents”.
The Bloomberg article says that office vacancies in both central business districts and suburban areas rose to 17.4 percent in the second quarter, the highest since 1993, New York-based research company Reis Inc. said July 6. Cushman & Wakefield’s figures are for central business districts in cities including New York, Washington, D.C., Philadelphia, Boston and San Francisco.
“The average vacancy rate in central business districts fell to 14.8 percent from 15 percent at the end of the first quarter”, said Sicola. Sixteen of the 31 cities tracked by Cushman & Wakefield had declines in vacancies, the company said.
Some office landlords cut their rents to fill space, Cushman & Wakefield said. The average rent fell to $36.49 a square foot from $36.88 in the first quarter. Nineteen of the 31 districts covered in the survey had quarterly declines in rates and 13 of those had drops of less than 3 percent, a smaller decline than in past quarters, C&W said.
Rental Rates nearing the Bottom
“While there is still substantial competition among landlords to offer the best deal to prospective tenants, rental rates are nearing a bottom in several markets,” Sicola said.
The U.S. has added 882,000 jobs since the beginning of the year, according to the Labor Department. The drop in office vacancies in the second quarter followed nine straight increases dating back to the last three months of 2007, when the rate bottomed out at 9.7 percent, C&W said.
So, as we have said in this space before, now is the time to be in the market. Different areas and different product types will recover at varying speeds. However, based on our own experience, activity is up significantly and we even had a landlord pull us aside on a tour last week to apologize that he simply couldn’t be as aggressive as he had been in the past.
The times, they are a changing.