Rising demand may enliven office sector
The national office vacancy rate increased 0.8% to 16.4% in the first quarter of 2003, but this is expected to be the peak vacancy rate in this cycle. Office space demand is rising and the growth in the supply of office space has continued to diminish. Employment in office-based industries is up 0.6% since January, as jobs fell in other industries, with more jobs in financial services, medical care, and local government partially offset by continuing employment declines in professional and technical services and information industries.
Office construction spending has declined more than 10% in the last six months with further small declines likely to be reported early in the summer.
Only a few scattered cities had a small vacancy rate decline early in 2003. Those include Austin, Texas, Baltimore, Cleveland, Honolulu, Orange Country, Calif., and Manhattan. The largest vacancy rate increases in the first quarter occurred in Boston (4.1%), central New Jersey (2.0%), Los Angeles (1.9%), Detroit (1.8%), and Wilmington, Del., Houston, and Columbus (1.0-1.5%).
Cautious supply in recent years is responsible for the below average vacancy rates in the greater Los Angeles and New York City metros. However, plunging demand from cyclically weak industries is the primary cause of the highest vacancy rates.
In Detroit, slow growth in motor vehicle sales and the depressed capital goods industries resulted in the rising vacancy rate.