Office Space Landscape is Changing

Office Vacancy Rate

According to Randyl Drummer, in an article from the CoStar Group, “strong absortion and very limited construction, combined with a significant number of demolitions/removals of antiquated buildings helped to push the U.S. office vacancy rate down 50 basis points over the past year to 12.3% at the end of fourth-quarter 2012”.

Vacancy rates fell across the country, and according to Walter Page, director of research, “a lot of markets are now in that 11%-12% vacancy rate range.  That’s the long-term average vacancy rate, and when markets drop below that level, you are moving into the territory of rent growth”.  Also, the office sector is expected to experience more than a 1 percentage point improvement in average occupancy rates going forward.  These lower vacancy and higher occupancy rates will cause rent to rise, so not surprisingly, “rent growth rose 1.7% year over year in 2012 and is still moving upward…but most importantly rising rents will spread to more markets as limited supply is absorbed”, according to Drummer.

Since the primary markets are experiencing such rapid absorption, develops will move into “the nation’s long suffering secondary and tertiary markets”, so they will be able to reap the benefits as well. These absorption levels and vacancy rates are good signs for investors, particularly office investors, since they are causing rent to rise, which means higher values and returns going forward.