The national vacancy rate dropped to 15.4 percent in the second quarter from 15.9 percent in the first quarter, according to the survey of the top 67 U.S. office markets by Reis Inc., a New York-based real-estate research firm. Rents jumped 0.7 percent in the second quarter to $20.32 a square foot a year from $20.18 a square foot in the first quarter. That builds on a 0.6 percent jump in the first quarter, which was the first rent increase in four years.
Absorption — the net change in occupied space — was a strong 19.5 million square feet in the second quarter, the second-best performance since the fourth quarter of 2000 and nearly double the 10.4 million square feet absorbed in the first quarter.
New construction remained well in check, with just 6.6 million square feet of office space completed during the quarter, compared with a peak of 44.2 million square feet in the fourth quarter of 2001.
The new numbers confirm that offices have shifted to a landlord's market, welcome news for building owners who have been buffeted by nearly five years of high vacancy rates and falling rents. Those negatives were mitigated by low interest rates, which helped prevent a crush of bankruptcies like those the country saw in the early 1990s.
Reis had been projecting that rents would grow a modest 1.6 percent this year. But with rents already up 1.3 percent in the first half, the full-year figure will likely well surpass that prediction, said Dan Quan, an analyst with Reis.
Across the country, the best markets are concentrated on the coasts, and the poorest markets are in the Midwest. Washington, helped in recent years by an expanding government and booming defense contractors, continued to have the lowest vacancy rate in the nation, at 7.5 percent. New York City and Long Island, N.Y., tied for second place at 9.7 percent each. San Bernardino, Calif., and Orange County, Calif., rounded out the best five markets, both with vacancy rates hovering at about 10 percent.
At the other end of the market, Dallas continued to lag far behind the rest of the country, with vacancies at 24.6 percent. Denver was second-worst, at 20.2 percent, followed by Cleveland; Memphis, Tenn.; and Columbus, Ohio, all at about 20 percent vacancies.
