Office demand slackens with slow job growth

NEW YORK Mon Jan 7, 2013 12:08am EST

The skyline of lower Manhattan is seen in New York August 6, 2012. REUTERS/Charles Platiau

The skyline of lower Manhattan is seen in New York August 6, 2012.

Credit: Reuters/Charles Platiau

NEW YORK (Reuters) - New demand for U.S. office space slipped in the fourth quarter from three months ago and a year earlier as job growth remained sluggish, according to a report.

Tenants took on 3.7 million square feet of additional office space in the fourth quarter, down from 4.8 million in both the third quarter and the year-earlier period, according to the report released on Monday by real estate research firm Reis Inc.

"Without a robust labor market recovery there will be no robust office market recovery," said Ryan Severino, senior economist for Reis.

Employers added a lackluster 155,000 jobs in December and the unemployment rate held steady at 7.8 percent, the government said on Friday.

The office vacancy rate in the quarter was 17.1 percent, far higher than the 12.6 percent recorded at the end of 2007 right before tenants gave up space in the financial crisis.

The vacancy rate, however, edged lower by one-tenth of one percentage point in the quarter as developers added only 3.2 million square feet of space, less than renters took on. U.S. office inventory amounts to 4.09 billion square feet, according to Reis.

Weak demand for space gives developers little reason to build, Severino said. Lenders continue to impose more stringent requirements on developers before they will provide construction financing, he said.

The vacancy rate peaked at 17.6 percent in the financial crisis.

Average rental rates, adjusted for discounts and incentives offered by landlords, grew by a weak 0.8 percent in the quarter to $22.96 per square foot per year, Severino said.

The cities with the tightest markets continue to be those with stronger technology or energy sectors in their economies. Rents in San Francisco, for example, rose 3.6 percent, the most of any of 79 markets, to $34.69 per square foot. The vacancy rate in San Francisco was 13.8 percent.

Washington, D.C. has the tightest market of all at the moment, with a vacancy rate of 9.3 percent. But Severino expects New York to take that title soon as its increasingly important technology sector takes more space and as the government in Washington cuts employment.

The vacancy rate in New York was 9.9 percent in the quarter, two-tenths of a percentage point better than three months earlier. The average rental rate in New York was $48.55 per square foot, up 1.4 percent in the quarter.

(Reporting by David Henry in New York; Editing by Kenneth Barry)

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Comments (1)
MikeBarnett wrote:
This report is not a surprise because workers use their pay checks to buy things. If unemployment remains high, companies don’t need office space because they don’t have enough customers. Shifting all of the money to the 1% will turn America into a third world country. The 1% won’t eat more eggs for breakfast and won’t drive several cars to the office each day. The 1% won’t spend enough in enough locations to keep the US economy running.

Warren Buffet didn’t want the $2 billion tax cut that Republicans gave him because he wanted it to go to the Small Business Administration to set up 8,000 small businesses with 40,000 workers. 8,000 entrepreneurs would have 8,000 times as many new ideas as Mr. Buffet for driving the US economy. 40,000 new workers would have 40,000 times as many new thoughts for improving productivity in their 8,000 work places as Mr. Buffet. I’m not criticizing Mr. Buffet because he was wise enough to know that he could not be everywhere and do everything to drive the US economy. 8,000 is a bigger number than 1, and 40,000 is a bigger number than 1. Republicans are simply too stupid to understand this.

The Chinese understand Mr. Buffet’s ideas, and they are lending more money to small businesses in China. They are putting more people to work who will earn money to spend and drive China’s economy. Their five year plan from 2011 to 2015 is shifting economic activity from the east coast to the central and western provinces. This is giving more Chinese people bigger pieces of China’s economic pie. They have more shoulders to the wheel driving their economy than the US. Their government participates like any other part of their economy, and they have state-owned companies, state-private partnerships, and private enterprises that are the vast majority. The state and private sectors are not always fighting each other, so they have more efficiency and cooperation to make more profits for everybody. America could consider doing the same, but it appears to be too heavily controlled by the 1% at this time, so China will continue to race past the US.

Jan 07, 2013 1:46pm EST  --  Report as abuse
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