NEW YORK The U.S. office vacancy rate set a new 17-year high in the third quarter, but the market looks to have bottomed as the size of the increase eased and rents were unchanged, real estate research firm Reis Inc said on Tuesday.
"If we're not there yet, we're pretty close," said Reis economist Ryan Severino.
A loss of 1.9 million square feet of occupied space helped push the U.S. vacancy rate to 17.5 percent in the third quarter, the highest since 1993, according to Reis's preliminary quarterly figures. The rate has been climbing since it hit its cyclical low of 12.5 percent in the third quarter of 2007.
But the vacancy rate crept up just 0.1 percentage point from the prior quarter as it had in the second quarter. The increases were dramatically less than those last year, where vacancies rose more than 0.6 percentage points each quarter.
Additionally, effective rent, which measures rent after months of free rent and other perks are factored out, was effectively flat during the third quarter, at $22.05 per square foot. Asking rent, was down 0.1 percent for the second consecutive quarter, at $27.50 per square foot.
Demand for office space is a function of confidence in the U.S. economy and job growth.
"If the overall economy continues on its current path of stabilization and recovery, this opens the possibility that rents may turn positive sometime during fourth quarter," Severino said.
The last time the overall effective rent rose was in the second quarter 2008, according to Reis, which tracks 79 primary U.S. markets. But Severino still cautioned that the economy and the labor market have been recovering at an anemic pace, leaving the U.S. office market vulnerable.
New York, the largest U.S. office market, saw the tide turn in third quarter. Vacancies fell to 11.3 percent from 11.6 percent in the second quarter. Effective rent rose 0.2 percent in the third quarter to $43.75 per square foot.
Washington D.C. maintained its rank at the tightest market, with the lowest vacancy rate at 9.8 percent. But Detroit, hit by auto industry troubles, had the highest vacancy rate of 26.7 percent.
Rent in Washington D.C. rose 0.1 percent to $41.13 per square foot, while Detroit's fell 0.5 percent at $13.96 per square foot.
(Reporting by Ilaina Jonas; Editing by Tim Dobbyn)