Office Vacancy Rates Still Soaring

The U.S. office vacancy rate rose another 0.5 percent in the third quarter, reaching 16.5 percent, a five-year high, according to research firm Reis Inc.

Effective rent fell 2.2 percent from the second quarter to $22.91 per square foot and was down 8.5 percent compared to the third quarter of 2008.

Effective rents fell in 68 out of 79 markets in the third quarter. Markets such as San Diego, Seattle, Boston, San Jose, Orange County, and San Francisco all had double-digit year-over-year effective rent declines. The vacancy rate for New York, the largest U.S. office market, rose 0.6 percentage points to 11.4 percent with effective rent falling to $47.16 per square foot, down 4.4 percent.

Further declines are likely nationwide, said Victor Calanog, Reis director of research.

"At some point they will need to lower asking rents significantly in order to bring prospective tenants in the door, even before talks about concessions are initiated," Calanog said. "We have yet to observe clear, systematic evidence that the office market is bottoming out and has begun to recover."

Source: Reuters News, Ilaina Jonas (10/07/2009)