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By Matthew Quinn
The U.S. office vacancy rate hit 17 percent in the fourth quarter, a 15-year high, forcing landlords to cut rents by the largest amount since at least 1980, according to a report on Friday from real estate research firm Reis.
"This period marks the eighth consecutive quarter since the beginning of 2008 that office properties registered deterioration in occupied space," said Victor Calanog, director of research at Reis, in a press release.
The national office vacancy rate climbed 0.40 percentage points from the third quarter to reach its highest level since 1994. The vacancy rate was 14.5 percent a year earlier.
Job cuts have slashed demand for office space nationwide. The office vacancy rate rose in 63 of the 79 major metropolitan areas covered by Reis.
The Labor Department's nonfarm payrolls report released on Friday didn't offer any encouraging signs, as it showed the economy shed another 85,000 jobs in December.
"Despite declining job losses, we have yet to observe clear, systematic evidence that the office market is bottoming out and has begun to recover," Calanog said. "We will need to see clear, systematic evidence of resumption in hiring before businesses begin leasing new space."
Nationally, asking rent fell 1.1 percent to $27.80 per square foot in the fourth quarter. The numbers turn even worse, at least from a landlord's perspective, once you factor in months of free rent and other enticements, which brought the effective rent down to $22.44 per square foot, down 1.9 percent from the third quarter. For full-year 2009, effective rent fell a staggering 8.9 percent, the largest one-year decline since Reis began tracking it in 1980.
"Never before have landlords been under so much pressure to offer concessions to attract and retain tenants," Calanog said. "Asking rents have fallen at a lower rate, but this just implies further room to fall down the road if conditions do not improve soon. Landlords can only offer so much concessions, and at some point they will need to lower asking rents significantly in order to bring prospective tenants in the door."
For the year, rents fell 19.8 percent in the New York area, the largest office space market in the U.S. That represents the largest annual decline since Reis began tracking that data in 1981.
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