U.S. Office Market First Look: 2010-Q2

  • The vacancy rate crept higher in the second quarter but just barely, up a mere 10 basis points to 18.0 percent. This ties the all-time record peak in the 24-year history of Grubb & Ellis’ national office database. Previously the vacancy rate hit 18.0 percent in the fourth quarter of 1990 and again in the third quarter of 1991.
  • Absorption turned positive in the second quarter following eight consecutive quarters in the red. The final tally was 3.9 million square feet - low but mercifully in the black.
  • Developers completed 5.3 million square feet of new space, the sixth consecutive decline and the lowest rate of new deliveries in nearly five years. Space still in the construction pipeline fell for the eighth consecutive quarter to 20.4 million square feet. This is equivalent to 0.5 percent of the total inventory of office space, which is the lowest such ratio in nearly 15 years.
  • The average Class A and B asking rental rates for space available at the end of the second quarter were $31.24 and $22.94 respectively. These numbers were up slightly from the first quarter, but the data series is volatile. With market conditions remaining soft, it is far too early for rental rates to embark on a rally.
  • Sublease space offered on the market fell for a third consecutive quarter to end the period at 101 million square feet, down more than 22 million square feet from the peak.

The market surprised on the upside this quarter with positive absorption and a vacancy rate that appears to be at or near its peak. Although the office market lags the labor market, which itself lags the broader economy, the fact that more office space was occupied at the end of the second quarter than at the beginning suggests that businesses have a measure of confidence about their own revenues and their ability to weather a soft economy. The leasing market recovery is likely to be long and slow, but this is the most hopeful indicator yet that demand for office space is turning around.

To view more graphs depicting the nation's office market, click here to open an Excel file and then click through the worksheet tabs at the bottom of the page.