National vacancy rates increased once again for both office and industrial space between the second and third quarters of 2002. Weak demand for new space on the part of both service businesses and manufacturers, coupled with the oversupply of new and renovated space, continued to negatively impact just about all metropolitan real estate markets throughout the nation. The downturn seems to be bottoming out, but we may see market conditions get a little bit worse before they get better over the course of 2003.
The third quarter of 2002 saw further increases in metropolitan (downtown and suburban) office vacancies throughout most of the nation, according to data from the most recent survey conducted by commercial brokerage and research firm CB Richard Ellis. Following an increase of 0.4 percentage points between the first and second quarters of this past year, the national average office vacancy rate rose another half a percentage point during July-September 2002, to a level of 15.1%.
The Q3-2002 level of downtown vacancies in office buildings was 0.8 percentage points greater than during the second quarter of last year, and 2.5 percentage points higher than during July-September 2001. Suburban vacancy rates moved up 0.6 percentage points over the quarter and remained well above the downtown level. The nation's suburban vacancy rate during the third quarter of 2002 came in at 16.5%, or 3.5 percentage points higher than during July-September 2001.
The tightest office markets among the 47 major metropolitan areas nationwide surveyed by CB Richard Ellis during Q3/2002 were Washington, D.C. (8.9% vacancy rate), Tucson (9.5%), Sacramento (9.9%), Long Island (10.0%), and Manhattan (10.6%). Among those areas that recorded office vacancy rates well above the 15.1% third-quarter 2002 national average were San Jose (22.9%), Columbus (22.2%), Dallas/Ft. Worth (21.9%), and Atlanta (21.1%).