Business office rentals fall

NEW YORK – April 7, 2008 – Reis Inc. reports that the rate of vacant office space nationwide rose from 12.6 percent in last year’s fourth quarter to 12.8 percent in this year’s January-through-March period. However, that is still well under the 16.9 percent rate reached in 2003 soon after the technology boom went bust.

The sector is not expected to get as bad this time around, due to the fact that commercial developers have been less aggressive about building new space. Still, Reis’s findings do not bode well for the overall economy, as office vacancies are closely tied to job growth. Additionally, the office leasing slowdown will likely exacerbate the decline in the construction of new commercial space – an area that propped up GDP growth in 2007.

The weakest office markets are currently in such distressed housing markets as Arizona, California, Florida and Nevada. All four exhibit signs of distress, with empty buildings and falling rents as housing-related industries falter.

Investors who purchased and financed office buildings during the short-lived frenzy of 2006 and last year also have taken a hit. At the time, these buyers paid top dollar for such space, expecting that quick rent growth would cover the outsized debt payments – a strategy that now seems to be backfiring.

Source: Wall Street Journal (04/03/08) P. B5; Frangos, Alex

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