Quarterly Results Buoys US Office Market: Colliers International Report

SEATTLE, Nov. 3, 2010 /PRNewswire/ -- The U.S. office market absorbed 6.5 million square feet of space on a net basis during the third quarter in a major improvement over the 1.8 million square feet of similar activity recorded in the prior quarter, according to new research from Colliers International.

This latest report from Colliers International, one of the world's leading commercial real estate services firms, strengthens the argument that the nation's largest office hubs are in the early throes of a sustained recovery. Findings from the report also suggest that office users have a limited amount of time left before the market cycle once again begins to favor landlords and rising rents.

Case in point: The largest office users in global gateway cities such as New York City, Washington, DC and San Francisco must choose between either locking into expansion space soon or simply wait for the next development cycle to deliver fresh Class A space configured to their needs. Yet it may be a while before the latter scenario plays out, given that few new office projects are being financed and/or completed. So the very real prospect of the tenants' market losing ground should persuade many large office users to act soon before landlords gain the upper hand on pricing.

A convergence between steady growth in office-using jobs and a narrow pipeline of new office completions and projects under construction should also tighten office market fundamentals. This, in theory, will drive vacancy rates down as the availability of existing large blocks of space continues to dwindle.

"Our third quarter office market findings are indeed encouraging in many respects," said Ross Moore, chief economist at Colliers International. "One of the most positive findings is that the national office vacancy rate appears to have peaked earlier this year at 16.3 percent as the volume of new office completions has virtually dried up. In a healthier cycle, a dearth of new office development would not bode well for growing businesses. But in today's languishing economy, this is actually good news for the nation's office landlords."

As Moore notes, the largest office markets generated the steepest gains during the quarter. The numbers bear this out: As the nation's pre-eminent office market, Washington, DC generated 882,158 square feet of net absorption during the quarter - - which drove its vacancy rate down to 11.6% (still the lowest in the nation).

In line with these results, office rents in the nation's capitol climbed by $1.06 to hit $52.32 per square foot at the end of September, fueled largely by the addition of new government jobs and limited office completions during the quarter. Other stronghold office markets such as New York City and San Francisco strengthened during the quarter as multi-national firms (in both cities) and technology-based businesses (in San Francisco) increasingly expanded their operations. 

Conversely, several of the largest interior U.S. cities continued to see their office markets weaken during the quarter. While the divergence between coastal office markets and their landlocked peers has been apparent for years, the Colliers research team also identified a widening performance gap between the largest CBD and suburban office markets.

Case in point: The nation's largest CBD markets registered just 14.86 percent vacant at the end of June, but vacancy within the suburban office market was markedly higher at 16.91 percent. One major factor that has clearly impacted the health of the suburban office market is the addition of roughly 3.8 million square feet of new office space during the third quarter alone. By comparison, a fraction of that total - - or 1.63 million square feet - - was completed in the CBD market during that period.

Highlights from the full research report, which deftly analyzed the sixty-three largest office markets in the nation, include the following:

• There have been only two quarters since the end of September 2009 that eked out positive absorption in the national office market - - the second and third quarters of 2010.
• The total volume of sublease space continued to decline during the quarter, representing just 7.6 percent of total vacancy versus 8.2 just three months earlier (of note – the long term average is approximately 10 percent).
• The total amount of office space being constructed at the end of September in both the CBD and suburban markets were roughly equal with CBD office construction registering 10.1 million square feet and the suburban office pipeline registering 10.4 million square feet.
• While office vacancy declined from 16.3 to 16.2 percent during the third quarter, it still registers above where it was at the end of September 2009 (when it was 16 percent).

Additional data and research available in the full report.

"Our latest US Office Market research report for the third quarter further highlights the breadth and scope of Colliers International's research capabilities and the collaboration among our leading professionals to deliver sophisticated and insightful analysis to the marketplace," said Dylan Taylor, Chief Executive Officer, USA with Colliers International, "Colliers International has a tremendous platform to offer this level of research and thought leadership to our clients, with several other new research reports and White Papers to follow."

*Net absorption refers to the amount of office space occupied at the end of a period minus the amount occupied at the beginning of a period. It also takes into consideration any space that was vacated during the period.

Note to Editors: A PDF version of the full Third Quarter Office Market Report is available at: http://www.colliers.com/Country/UnitedStates/content/officenahighlights3q2010.pdf.

About Colliers International

Colliers International is a global leader in real estate services with more than 15,000 professionals operating out of 480 offices in 61 countries.  As a subsidiary of FirstService Corporation (Nasdaq: FSRV; TSX: FSV and FSV.PR.U), Colliers offers the stability of a strong financial partner and significant local ownership providing clients with accountability and enterprising real estate solutions. Colliers provides a full range of services to real estate users, owners and investors worldwide including: global corporate solutions; sales and lease brokerage; property and asset management; project management; hotel investment sales and consulting; property valuation and appraisal services; mortgage banking and insightful research. The Lipsey Company and National Real Estate Investor magazine ranked Colliers International as the world's number two commercial real estate brand.

SOURCE Colliers International