Cassidy Turley Reports Office Market Nearing Stabilization as Economy Improves

ST. LOUIS, April 14 /PRNewswire/ -- The latest data for the first quarter of 2010 shows that demand for U.S. office space continues to improve, according to Cassidy Turley, one of the largest commercial real estate service providers in the U.S.  

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Net absorption registered at negative 3.2 million square feet in the first quarter of 2010, marking the 5th straight quarter of decelerating declines.

"The first leg of the recovery begins when the office market returns to positive demand.  The trajectory of recent job growth figures indicates that the U.S. economy will be consuming office space again by the second or third quarter of 2010," said Kevin Thorpe, Chief Economist at Cassidy Turley. "In other words, the office sector has not yet turned the corner, but it is at the cusp."

Despite decelerating declines in demand, the report reveals that the national office vacancy rate increased from 16.4% in the fourth quarter of 2009 to 16.6% in the first quarter of 2010, which is the highest vacancy rate since 2003.

"National vacancy remains elevated; it is now 260 basis points above its historical average," said Mr. Thorpe.  "With a myriad of high-quality options for tenants to choose from, effective rents will remain low until the excess space is absorbed.  It is a classic inventory overhang problem that can only be resolved with steady economic growth and time."  

Net effective rents remained flat in the first quarter of 2010 at $23.88 – marking the first time in five straight quarters that rents did not decline.  

"Based on the vacant stock figures, the U.S. is no less than 2 years away from seeing healthy rent growth again, but certain pockets within top tier markets will firm before then," added Mr. Thorpe.    

Regional Summary:

The Northeast market recorded 1.9 million square feet of positive absorption, leading all other markets in the U.S. Manhattan had a reported 2.5 million square feet of positive demand.

The Western region saw a significant improvement in demand, as absorption increased from negative 3.1 million in the fourth quarter of 2009 to negative 1.4 million in the first quarter of 2009.

The South registered a decline in overall demand, with absorption declining from negative 856,000 square feet in the fourth quarter of 2009 to negative 1.6 million square feet in the first quarter of 2010.  Washington, D.C. led the region with positive 928,000 square feet.

In the Midwest region, net demand showed steady improvement, with absorption climbing from negative 3.2 million square feet in the fourth quarter of 2009 to negative 2.2 million square feet in the first quarter of 2010.

In terms of investment sales, the report finds that top tier markets, including New York and Washington, D.C., reported a noticeable pick up in activity in the first quarter of 2010, which suggests that money is beginning to move off of the sidelines as some buyers take advantage of quality assets in quality markets.

Office sales prices continue to surprise on the upside. In March of 2010, sales in primary markets transacted at a cap rate of 7.7%, and in secondary markets at 8.1%.

"Capital Markets has bifurcated into a tale of two markets: core vs. value-add.  Demand for core product in top tier markets has seen a post-recession surge, which has shoved pricing upwards.  Meanwhile, the value-add portion of the market remains quiet, with buyers and sellers generally miles apart on what they believe the assets are worth," continued Mr. Thorpe.

The report finds strong demand and relatively healthy cap rates for core assets in top tier markets, and a continued reluctance to buy or sell value-add properties.  However, cap rates have inched down by over 100 basis points since December of 2009.

The 1st Quarter National Office Trends Report also features an up-to-date breakdown of Net Absorption, Office Vacancy Rates, Effective Rents and Inventory chart by region and city.  

The full report can be accessed via the following link (http://www.cassidypinkard.com/user-assets/Market%20Research/National%20Research/CT_National_Report_1Q10.pdf).  

About Cassidy Turley

Cassidy Turley is one of the largest commercial real estate services providers in the U.S., with 420 million square feet of managed space in 58 locations and $13 billion in completed transactions for 2009. The firms comprising Cassidy Turley include Cassidy & Pinkard Colliers in Washington, D.C., Colliers Turley Martin Tucker in the Midwest, Colliers ABR in New York City and Colliers Pinkard in Baltimore, Charlotte and Raleigh, along with the addition of BT Commercial and CPS in Northern California (formerly affiliated with NAI and CORFAC, respectively), BRE Commercial in Southern California and Phoenix (both formerly affiliated with Grubb & Ellis), Colliers Houston & Co. of New Jersey and Colliers Barry of Wisconsin.  Outside of North America, Cassidy Turley partners with GVA Grimley, the founder and majority shareholder of GVA Worldwide. GVA Worldwide is a global service company with over 2,500 real estate professionals operating in over 85 markets. Collectively, the Cassidy Turley firms have over 360 shareholders.  Through its team of experienced service professionals, Cassidy Turley focuses on the needs of its clients, offering end-to-end services delivered across a full spectrum of commercial real estate including Capital Markets, Corporate Services (which supports more than 25,000 locations), Landlord and Tenant Representation and Property and Project Management. The firm also offers specialty services and industry focused practice groups as well as first class market research. In addition, Cassidy Turley is a leader in assisting clients to create more sustainable workplace environments.  The firm recently ranked in the Top 10 on the Lipsey Co.'s Commercial Real Estate Top Brands Survey. Please visit www.cassidyturley.com for more information about the company.

SOURCE Cassidy Turley