US office market recovery stalls in second quarter
The US office market recovery struggled to accelerate in the second quarter as occupancy gains stalled and rent growth slowed, said property research firm Reis.
Effective rents, or what's paid after any landlord discounts, rose 0.4 per cent from the previous three months. That's down from 0.7 per cent growth in the first quarter and 0.8 per cent at the end of last year, the New York-based company said in a report.
Tenants paid an average of US$23.23 per sq ft in the three months to June, up 2.1 per cent from a year earlier. The vacancy rate held at 17 per cent.
"With the labour market unable to generate significant office-using employment, demand for space remains enervated," said Ryan Severino, senior economist for Reis.
The firm expects the rest of the year to be little changed from 2012, with sluggish job growth, government spending cuts and increases in taxes and interest rates weighing on the office market. Without stronger demand, it would take years for rents to return to the 2008 peak of about US$25 per sq ft, Reis said.
An average of 196,000 jobs a month were added in the second quarter, Labour Department figures show. That's down from 207,000 positions a month in the first quarter, a sign that the employment-market recovery is "downshifting a bit", Severino wrote. Many of the jobs being created are in sectors that tend to use less office space, such as construction, manufacturing, retail and health care, he said.
While unchanged from the first quarter, the US office vacancy rate fell from 17.3 per cent a year earlier. The rate has been between 17 per cent and 17.6 per cent since the end of 2009. It was 13.2 per cent in the second quarter of 2008, before the financial crisis, Reis data shows.
"Without even modest demand, the decline in the national vacancy rate will not accelerate," Severino wrote.
Construction of new offices rebounded from a 14-year low in the first quarter, more than tripling to 7.59 million sq ft - about two and a half times the size of New York's 1 World Trade Centre. It was the largest amount of new space completed in three years, according to Reis.
Still, that number barely exceeded the 7.23 million sq ft of net absorption, the difference between the amount of space put on the market and the amount leased, Severino said.
"There is little to no demand for space in existing buildings," he wrote. "Clearly, the market is favouring new space."