Commercial office vacancies nationwide continued spiraling upward during the final quarter of 2001, while rents in the first quarter of this year fell faster than at any time since 1991. These related performances offer proof that the office market continues to be one of the hardest hit building sectors during the current economic slowdown.
Businesses vacated 26.4 million square feet of space in the first quarter, according to Reis Inc., a New York real estate investment and research firm.
A glaring example of the ailing office market is San Francisco, where the city's office vacancy rate reached 21 percent for the first time during the first quarter, according to an April report by Grubb & Ellis, Northbrook, Ill. (See BD&C, 4/02, page 32).
The final quarter of 2001 saw further increases in downtown and suburban office vacancies throughout most of the U.S., according to a survey conducted by commercial brokerage and research firm CB Richard Ellis, Glen Allen, Va. Following an increase of 1.7 percent between the second and third quarters of last year, the national office vacancy rate rose 1.1 percent during the final quarter to 13.1 percent.
'Effective rents' hit 10-year low
Rents declined 2.2 percent in the first quarter. However, "effective rents" — which reflect landlord concessions such as free rent and tenant improvements — dropped 4.3 percent, the largest quarterly reduction in more than 10 years, according to Reis.
Downtown office vacancies in the fourth quarter 2001 were at 11 percent, 0.6 percent higher than during the third quarter, and 4.7 percent higher than during the same period in 2000. Suburban vacancy rates moved up 1.4 percent during the quarter to 14.4 percent, 5.6 percent higher than during the fourth quarter 2000.
The tightest office markets in major U.S. metropolitan areas at the end of last year were Washington, D.C. (6.6 percent), New York City (8.6 percent), and San Diego (9.7 percent).
On the opposite end, the highest vacancies during this period were in Columbus, Ohio (20.9 percent), Dallas/Fort Worth (20.4 percent), Indianapolis (19 percent), and Atlanta (18.9 percent).
From hubs to the 'burbs
Average office vacancy rate
|Source: C.B. Richard Ellis