* U.S. office rents inch up 0.3 percent - Reis report
* Vacancy rate edges down 0.1 percentage point
* No significant improvement expected for rest of year
* Tech and energy offices rare bright spots
By Ilaina Jonas
NEW YORK, Oct 2 The U.S. office market recovery
remained stalled in the third quarter as uncertainty over the
upcoming federal elections, U.S. tax policy and Europe's fiscal
problems crimped job growth, keeping demand for office space
limp and rent growth anemic.
"We're stuck," said Ryan Severino, senior economist for Reis
Inc, which released its third-quarter office report on Tuesday.
Reis also sees no significant improvement for the rest of
"The office market is not going to move in the right
direction until the labor market starts to move in the right
direction," Severino said. "Nobody is going to lease space until
they're hiring, and nobody is going to hire until they feel more
confident about the direction of the economy."
Office markets where the technology or energy sectors are
thriving continued to be the rare bright spots in office leasing
in the third quarter, according to Reis's preliminary results
Landlords have followed the jobs. For example SL Green
Realty Corp, one of the biggest Midtown Manhattan office
landlords, said on Monday that it bought two relatively small
110-year old buildings for $173 million or $648 per square foot
in the neighboring tech-rich Midtown South market.
Over the past 12 months, office rents posted the strongest
growth in markets where then tech and energy sectors are
thriving. San Francisco rents rose 5 percent over the past 12
months followed by New York, which was up 4.1 percent. San Jose
rents rose 2.7 percent, and Houston and Austin rents were up 2.5
But overall, the average asking rent for U.S. office space
rose only 1.4 percent over the past 12 months and just 0.2
percent to $28.23 per square foot from the second quarter.
Effective rent, which takes into account months of free rent
and other perks landlords offer to lure or keep tenants, rose
0.3 percent to $22.78 per square foot.
In bad news for landlords and good news for their tenants,
the increase in rent is decelerating. Rents are mired in 2007
levels, meaning that the office rents have effectively trod
water for the last five years.
"We have to go back to the fourth quarter of 2010 to find
rent growth more tepid than the growth rates we have observed
over the last two quarters," the Reis report said.
Meanwhile, the vacancy rate dipped in the third quarter by a
scant 0.1 percentage point to 17.2 percent from the second
quarter. The vacancy rate declined by just 0.30 percentage
points compared with a year earlier.
The national office vacancy rate remained at a level unseen
since 1993 and well above the pre-recession cyclical low of 12.5
percent in 2007. The rate also remained stubbornly close to the
cyclical high of 17.6 percent in the third and fourth quarters
2010 and the first quarter of last year.
Washington, D.C. and New York were the tightest markets in
the country. New York's vacancy rate declined to 10.1 percent
from 10.3 percent but the vacancy rate in Washington D.C. rose
to 9.5 from 9.4 percent.
Las Vegas continued to be the poorest performing market,
weighed down by the fallout from the housing bust.