US Office Market continues to slide
The North American office market continued on a downward trajectory, with Q1 2009 being the worst quarter since Q3 2001 according to real estate experts. Vacancies have been rising steadily and set continue to rise into the rest of 2009. One major factor that is certainly contributing to the problem is the amount of sublease space that is coming onto the market. Sublease space rose by 7.5 million sq ft during Q1 and is now 11% of all available space. Within the Manhattan market it is nearly one third of all available space. Sublease space is almost always cheaper than new space and thus drags down the overall rental values.
There is also the issue of the supply of new space which is coming onto the market. There was 15.4 msf of new space completed in Q1 2009, mostly in suburban area’s. There is 83 million sq ft of office space under construction across the whole of the US. With further job losses predicted to come in Q2 you can bet your bottom dollar that demand will continue to slump and the national vacancy rate will increase. Experts are predicting 100 million square feet of space to come back onto the market as companies downsize. Some are predicting a national vacancy rate of 20%
Rents are also falling, for example, the average asking rent for class A office space nationwide is $43.36 per square foot, down five and half percent from the end of 2008. Suburaban rents are around the $27 per sq ft mark. However, they are only expected to go one way in the near future. This also doesn’t take account of the generous incentives that tenants are being offered such free rental periods or improvements to current workspace.