Office, industrial sectors diverge.


The industrial sector appears increasingly robust while office sector net absorption slowed and office rents flat-lined in the third quarter, according to Cassidy Turley, Washington, D.C.

"The U.S. office sector shifted into lower gear as businesses became increasingly skittish about the upcoming elections and looming fiscal cliff," said Kevin Thorpe, chief economist with Cassidy Turley. The fiscal cliff refers to the proposed federal budget cuts and tax increases scheduled to take effect on Jan. 2, 2013, without action by Congress.

Thorpe said office sector net absorption slowed to 6.5 million square feet in the third quarter, down more than 50 percent from the previous quarter.

"Unlike during the first half of the year when the majority of markets reported steady gains in occupancy, the third quarter revealed a general softening in [office] demand," Thorpe said.

Of the 8o metros tracked, 43 markets reported either negligible gains or negative absorption. But net demand for industrial space increased significantly in the third quarter, totaling 27.5 million square feet compared with the prior quarter's 20.1 million square feet.

"The third-quarter figure was one of the strongest in this recovery and reflects the continuation of a robust uptrend that began in 2011," Thorpe said, adding that businesses have leased up 166 million square feet of additional industrial space over the last 21 months--"the equivalent of filling up more than 900 individual structures."

He added, "The industrial sector has now leased up more space than it shed during the recession."Industrial vacancy rates fell to 9 percent, down ioo basis points from its recessionary peak.

In the office sector, Thorpe said some "bright spots" have appeared. "Atlanta, San Jose [California], New York and Houston all registered over i million square feet of net absorption for the third quarter," he said. "A handful...

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