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Office Market Vacancy Expected to Peak in Fourth Quarter

A new report confirms what most industry practitioners are seeing and feeling in the marketplace: The economic recovery is here, but it sure is taking its sweet time in gaining any significant momentum in the U.S. office market.

CB Richard Ellis Econometric Advisors (CBRE-EA, formerly known as Torto Wheaton Research) projects that the U.S. office market vacancy rate will slowly start to drop in the second half of 2011.

But first, some really bad news: The office vacancy rate will peak at 17.0% in the coming months, in the fourth quarter of this year to be exact, and stay there another six months. Ouch.

“The office market appears to be reaching its cyclical bottom,” says Arthur Jones, senior economist with CBRE-EA. “With tenants beginning to show confidence that the economic recovery has indeed taken hold, leasing activity has showed nascent signs of improvement.”

Office fundamentals showed decidedly mixed results for the second quarter of 2010.

Though demand for office space remained weak, the second quarter delivered the first positive net absorption in a year and a half thanks to a limited amount of space being returned to the market. Nationwide, 3.2 million sq. ft. was leased, and that figure was not enough to stem rising vacancy. Still, at 10 basis points, the second quarter’s vacancy increase was the smallest since the end of 2007.

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