Office project starts up 16% in Q3
The national office vacancy rate fell to 17% in the third quarter from 17.2% in the prior quarter and 17.7% a year earlier, according to Property & Portfolio Research. The Boston-based real estate research and portfolio strategy firm expects the vacancy rate to continue declining at the same modest pace through 2007.
Despite the high level of vacancies and the slow improvement in vacancy rates, office development activity is beginning to expand rapidly. The value of office project starts is up 34% year to date through October compared to the same period last year. The Reed Construction Data project database also shows a 16% rise in starts for the third quarter compared to the third quarter of 2004.
The value of office projects in the planning stage prior to bidding has soared since the beginning of the year. Developers are reacting to favorable turnabouts in the office rental rate and net operating income. Rents have been steady since early 2004 but now are anticipated to increase at a 3–5% pace for several years. As a result, net operating income will soon turn up, although initially at a slow pace.