By Eliot Brown
In a sign the economic recovery's recent stumbles may be spilling over into the real-estate market, employers took on less office space during the second quarter than earlier in the year.
In all, the amount of occupied office space rose by 3.7 million square feet from April to June, according to real-estate research firm Reis Inc. While that was the third consecutive quarter in which firms added space, the gains were down from the first quarter, when occupied space rose 5.5 million square feet. Reis tracks the office markets in 79 U.S. metropolitan areas.
Rents, meanwhile, rose an average of 0.2% during the second quarter. The office data come as U.S. job growth—always a prerequisite for improvement in the office sector—has been slower than anticipated. In May, the economy added just 54,000 jobs, according to the Bureau of Labor Statistics, and economists predict the figure for June may not top 100,000.
The measured pace of growth in the office sector has only begun to chip away at the vast quantities of unfilled space across the country. Between January 2008 and September 2010, tenants emptied out of 138 million square feet, pushing the vacancy rate from 12.6% to 17.6%, according to Reis. Since October 2010, the amount of occupied space has grown by just 11.9 million square feet.
The amount of new leasing, "relative to the overall inventory, it's not a large amount," said Ryan Severino, an economist at Reis. "We are generally trending in the right direction, even if it is a slower, more inconsistent recovery than market participants would like to see."
The sector's improvements have been led by resilient markets such as New York and Washington, where job growth has been relatively steady and outpaced that of the nation.
"We had a big first quarter from a leasing perspective, and it still was solid for the second quarter," said Ric Clark, chief executive of Brookfield Office Properties, which owns office buildings in many major U.S. cities. While many firms are keeping to their existing sizes, Mr. Clark said some energy and law firms have been looking to expand. "It's not huge expansion, but it's some," he said.
Late last month, Nomura Holding America Inc. signed a lease for 900,000 square feet of space at Worldwide Plaza in Midtown Manhattan, opting to leave its home in the World Financial Center in lower Manhattan. The move, which is slated for 2013, speaks to the ambitions of expansion in Manhattan for the Japanese investment bank, which currently has 545,000 square feet in New York. Overall, rents in the New York City region were up 0.6% from the first quarter, and 3.6% from a year earlier, according to Reis.
Washington, with the nation's lowest vacancy rate of 9%, has benefitted from government-fueled job growth, which has spurred growth in a variety of related industries. In April, law firm Skadden, Arps, Slate, Meagher & Flom LLP announced it was signing new leases for about 415,000 square feet, expanding its presence by about 50,000 feet.
New office construction—which was all but nonexistent for the better part of three years—has also begun to emerge in the stronger markets. Multiple developers have announced projects in the Washington, D.C., area, including a venture led by office landlord Hines Interests LP, which this spring announced a groundbreaking on a mixed-use development slated to contain 520,000 square feet of office space.
In New York, Boston Properties Inc. in May announced its intention to start construction on a 39-story Skidmore Owings & Merrill-designed office tower on Eighth Avenue, after signing law firm Morrison & Foerster LLP as a tenant.
While major coastal cities have been performing well, some of the cities hardest hit by the recession have yet to see conditions hit bottom. Las Vegas, which has one of the highest vacancy rates in the nation at 24.9%, saw rents paid by tenants fall by 0.3% compared with the prior quarter, according to Reis. Rents in Phoenix, with a vacancy rate of 26.5%, fell 0.1%.
Source: The Wall Street Journal
July 7, 2011
In a sign the economic recovery's recent stumbles may be spilling over into the real-estate market, employers took on less office space during the second quarter than earlier in the year.
In all, the amount of occupied office space rose by 3.7 million square feet from April to June, according to real-estate research firm Reis Inc. While that was the third consecutive quarter in which firms added space, the gains were down from the first quarter, when occupied space rose 5.5 million square feet. Reis tracks the office markets in 79 U.S. metropolitan areas.
Rents, meanwhile, rose an average of 0.2% during the second quarter. The office data come as U.S. job growth—always a prerequisite for improvement in the office sector—has been slower than anticipated. In May, the economy added just 54,000 jobs, according to the Bureau of Labor Statistics, and economists predict the figure for June may not top 100,000.
The measured pace of growth in the office sector has only begun to chip away at the vast quantities of unfilled space across the country. Between January 2008 and September 2010, tenants emptied out of 138 million square feet, pushing the vacancy rate from 12.6% to 17.6%, according to Reis. Since October 2010, the amount of occupied space has grown by just 11.9 million square feet.
The amount of new leasing, "relative to the overall inventory, it's not a large amount," said Ryan Severino, an economist at Reis. "We are generally trending in the right direction, even if it is a slower, more inconsistent recovery than market participants would like to see."
The sector's improvements have been led by resilient markets such as New York and Washington, where job growth has been relatively steady and outpaced that of the nation.
"We had a big first quarter from a leasing perspective, and it still was solid for the second quarter," said Ric Clark, chief executive of Brookfield Office Properties, which owns office buildings in many major U.S. cities. While many firms are keeping to their existing sizes, Mr. Clark said some energy and law firms have been looking to expand. "It's not huge expansion, but it's some," he said.
Late last month, Nomura Holding America Inc. signed a lease for 900,000 square feet of space at Worldwide Plaza in Midtown Manhattan, opting to leave its home in the World Financial Center in lower Manhattan. The move, which is slated for 2013, speaks to the ambitions of expansion in Manhattan for the Japanese investment bank, which currently has 545,000 square feet in New York. Overall, rents in the New York City region were up 0.6% from the first quarter, and 3.6% from a year earlier, according to Reis.
Washington, with the nation's lowest vacancy rate of 9%, has benefitted from government-fueled job growth, which has spurred growth in a variety of related industries. In April, law firm Skadden, Arps, Slate, Meagher & Flom LLP announced it was signing new leases for about 415,000 square feet, expanding its presence by about 50,000 feet.
New office construction—which was all but nonexistent for the better part of three years—has also begun to emerge in the stronger markets. Multiple developers have announced projects in the Washington, D.C., area, including a venture led by office landlord Hines Interests LP, which this spring announced a groundbreaking on a mixed-use development slated to contain 520,000 square feet of office space.
In New York, Boston Properties Inc. in May announced its intention to start construction on a 39-story Skidmore Owings & Merrill-designed office tower on Eighth Avenue, after signing law firm Morrison & Foerster LLP as a tenant.
While major coastal cities have been performing well, some of the cities hardest hit by the recession have yet to see conditions hit bottom. Las Vegas, which has one of the highest vacancy rates in the nation at 24.9%, saw rents paid by tenants fall by 0.3% compared with the prior quarter, according to Reis. Rents in Phoenix, with a vacancy rate of 26.5%, fell 0.1%.
Source: The Wall Street Journal
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