At 17 pct, US office vacancy rate hits 15-year high

Fri Jan 8, 2010 12:01am EST

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 * U.S. office vacancy rate hits 17 percent
 * Rent falls 8.9 percent for the year
 By Ilaina Jonas
 NEW YORK, Jan 8 (Reuters) - The U.S. office vacancy rate
hit a 15-year high in the fourth quarter and landlords slashed
rent last year by the largest amount since at least 1980, real
estate research firm Reis Inc said on Friday.
 "This period marks the eighth consecutive quarter since the
beginning of 2008 that office properties registered
deterioration in occupied space," Victor Calanog, Reis director
of research, said in a statement. "We should not understate the
amount of pressure that office properties endured since the
recession began."
 During the fourth quarter the national office vacancy rate
climbed 0.40 percentage point from the third quarter to 17
percent, the highest level since 1994.
 For a graphic on the fourth quarter's results, click
link.reuters.com/syz32h
 Since the start of the recession in December 2007, the U.S.
economy has shed 7.2 million jobs, drastically reducing demand
for office space and flooding the market with sublease space.
To lure or retain tenants, landlords have offered months of
free rent and have kicked in for the cost of converting a raw
space onto offices.
 "Despite declining job losses, we have yet to observe
clear, systematic evidence that the office market is bottoming
out and has begun to recover," Calanog said. "We will need to
see clear, systematic evidence of resumption in hiring before
businesses begin leasing new space."
 During the fourth quarter, asking rent fell 1.1 percent to
$27.80 per square foot. But factoring free rent and other
concessions, the net amount landlords received, known as
effective rent, dropped 1.9 percent to $22.44 per square foot.
For the year, effective rent fell 8.9 percent, the largest
one-year decline since Reis began tracking it in 1980.
 "Never before have landlords been under so much pressure to
offer concessions to attract and retain tenants," Calanog said.
"Asking rents have fallen at a lower rate, but this just
implies further room to fall down the road if conditions do not
improve soon. Landlords can only offer so much concessions, and
at some point they will need to lower asking rents
significantly in order to bring prospective tenants in the
door."
 The office vacancy rate rose in 63 of the 79 primary
metropolitan areas that Reis covers. Effective rents fell in 70
of them.
 That could make things tougher for landlords such as Boston
Properties Inc (BXP.N), Vornado Realty Trust (VNO.N), Maguire
Properties IncMPG.N and Kilroy Realty (KRC.N).
 In the New York area, by far the largest U.S. office
market, vacancy rose only 0.10 percentage point in the fourth
quarter to 11.5 per square foot. But that came at a cost to
landlords, who offered more concessions, driving effective rent
down 5.3 percent for the quarter to $44.69 per square foot.
 For the year, New York rents fell 19.8 percent, the largest
12-month decline since Reis began tracking them in 1981, wiping
out gains from the peak year of rent growth in 2007 when rents
rose 25 percent.
  The California market of San Bernadino/Riverside, which is
among the hardest-hit areas of the U.S. housing bust, had the
highest office vacancy rate at 26.1 percent, up 2.4 percentage
points from the prior quarter.
 (Reporting by Ilaina Jonas, editing by Matthew Lewis)


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