The office market recovery continues to languish amid a slow economic recovery, reported Reis Inc., New York.
"With the labor market struggling, demand for office space remains at very low levels," said Reis Senior Economist Ryan Severino. He noted the third quarter saw 5.4 million square feet of office space absorbed--a slight increase over the 5.3 million square feet absorbed during the third quarter of 2011.
"This is the seventh consecutive quarter of positive net absorption, which reinforces that this is a recovery in demand for office space. Unfortunately, it is very weak," Severino said.
New construction accelerated marginally, with 2.8 million square feet delivered during the third quarter versus 2.1 million square feet in the second quarter. But this represented a slowdown compared with the 3.5 million square feet of office space delivered during the third quarter last year. Severino called 2.8 million square feet "the equivalent of only a handful of medium-size office buildings."
With weak demand for office space, Severino said little incentive exists on a widespread basis to develop new office properties. "Additionally, projects being built typically have a significant amount of pre-leasing in place, which is difficult to find in a market with depressed demand for space," he said.
Office vacancy rates have compressed 50 basis points since peaking at 17.6 percent during the first quarter of 2011, Reis reported, which Severino called a very weak recovery by historical standards. "During the 'jobless' recovery early last decade, the vacancy rate peaked at 16.9 percent during the first quarter of 2004," he said. "However, by the third quarter of 2005--the same interval as the current recovery--the vacancy rate had declined by 180 basis points to 15.1...