by Dan Rafter
Office vacancy rates in the third quarter of the year fell in 70 percent of the United States. That’s the good news from Cassidy Turley‘s third quarter office report.
According to the report, the U.S. absorbed 12.8 million square feet of office space in the third quarter of 2013. That’s down from the 15.6 million square feet of absorption in the second quarter, but the activity was still strong enough to keep the U.S. office market vacancy rate at 15.2 percent. That’s 2 percent lower than the recession-era peak of 17.2 percent for this market.
“Demand for office space is still subpar, but, nevertheless, it has been consistently positive for multiple, consecutive quarters,” said Kevin Thorpe, chief economist at Cassidy Turley, in a written statement. “At the same time, new supply remains extremely constrained. In fact, demand for office space has now exceeded new supply for over two years. So the office sector is clearly tightening in most cities across the country.”
There’s even been a bit of new office construction. There was 55.3 million square feet of office property under construction as the third quarter came to a close. That’s up from 54.5 million square feet under construction during the second quarter. Of course, new construction in this sector is still far lower than it was before the recession. Cassidy Turley says that construction of new office buildings is 30 percent below pre-recession levels.
Average asking rents in the third quarter came in at $21.88 a square foot, up 16 percent from the same period one year earlier.
“It’s still a tenant’s market in most U.S. cities, meaning businesses still have leverage when negotiating for lower rents and attractive concession packages,” Thorpe said. “But because of limited new supply, the pendulum is slowly shifting from a tenant’s market to a landlord’s market. Supply/demand fundamentals suggest the bulk of the country will be pushing office rents upward by this time next year.”
Chicago ranked as the fifth-strongest office market in terms of demand, seeing 659,000 square feet of office space absorbed during the third quarter.