Weak professional job growth hurts U.S. office market- Reis

NEW YORK, July 8 Mon Jul 8, 2013 12:00am EDT

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NEW YORK, July 8 (Reuters) - A lack of growth in white-collar jobs hurt the market for U.S. office space in the second quarter, with the vacancy rate stagnant at 17 percent, according to a report released on Monday by real estate research firm Reis Inc.

The vacancy rate for U.S. office space has been slowly ticking downward for over a year but remains historically high. Demand for office space has been stunted because even as the job market has improved, banks, law firms and other companies in professional services industries continue to cut jobs or hold back on hiring, said Ryan Severino, senior economist and associate director of research at Reis.

"The jobs we're generating are not the kind that really move the needle in the office market," Severino said in an interview. "We're generating education jobs, healthcare jobs, retail jobs and construction jobs - that's great, but they're not the kind of sectors we need to improve the office market."

Companies searching for office space - largely in the tech and energy sectors - have been opting for leases in new buildings, leaving landlords of older buildings in the lurch.

In the second quarter, almost 7.6 million square feet of new office space came onto the market, and 7.23 million square feet of space was newly occupied. Both statistics were big jumps from the prior quarter, when 2.2 million of new space came onto the market and 3.9 million of space was newly occupied.

Those trends indicate that tenants are holding out for new buildings that have technological advances, better views and relatively cheap prices. With the jump in supply, asking rents and effective rents rose just 0.4 percent from the first quarter, to $28.78 per square foot and $23.23 per square foot, respectively.

"The preference is for the new, sexy space that they might not have been able to get in a stronger market environment, and probably not at the rates that they're getting," said Severino.

Two metro areas in California - San Jose and San Francisco - were the only two to experience at least a 1 percent increase in effective rents. Washington, D.C., and New York reported the lowest vacancy rates, of 9.7 percent.

(Reporting by Lauren Tara LaCapra; Editing by Kenneth Barry)

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