Rents rose 0.7 percent in the first quarter to $20.25 per square foot per year from $20.11 in the fourth quarter, according to the survey of the top 64 U.S. office markets by Reis Inc., a New York-based commercial real-estate research firm. That reversed a decline of 0.7 percent in the first quarter a year ago and signals that for companies looking for office space, the four-year-old tenant's market may be ending.
The vacancy rate declined to an average of 16 percent in the first quarter from 16.2 percent in the previous quarter. It was the fourth-straight quarterly decline. Absorption — the net change in the amount of occupied space — slowed in the quarter to 10.1 million square feet, down from 20.1 million square feet in the fourth quarter. It was the sixth-consecutive quarter of positive absorption. The number was up significantly from the 1.2 million square feet absorbed in the first quarter a year ago and the minus 7.1 million square feet two years ago.
The rent increase was the first since the first quarter of 2001, just before the bottom dropped out of the office market, sending it into one of the worst downturns in history.
At one point a year and a half ago, absorption was negative for 12 out of 13 quarters, an unprecedented collapse in demand during which companies vacated 160 million square feet more than they occupied in a total market of about 3.5 billion square feet. Even with last quarter's increase, rents are still 20 percent below their peak of $25.34 a square foot four years ago.
In more good news for landlords, new-building completions remain very low. Just 4.8 million square feet of new buildings opened in the first quarter, well below the 44.2 million square feet opened in the most-recent peak, the fourth quarter of 2001.
In individual markets, Washington, D.C., continued to be the best-performing area in the country, with a vacancy rate of 7.5 percent, more than two percentage points lower than the two other best markets, San Bernardino, Calif., and New York. Dallas continued to be the worst market by far. Vacancies there were 25.6 percent in the first quarter. Columbus, Ohio, was second worst with vacancies at 21.9 percent.
Richmond, Va., continued to see its office market improve. Rents there jumped 1.8 percent, which tied it with Nashville for the biggest increase in the first quarter. Meanwhile, the hot Southern California markets remain so. Orange County rents went up 1.7 percent, while Los Angeles rents were up 1.5 percent. Minneapolis and San Jose performed worst. Rents in both markets fell 1.3 percent.
Separately, contracts to buy existing homes rose in February, according to the National Association of Realtors. Its index of "pending" home sales rose 2.2 percent to 123.2 from January's 120.6, and up 10.4 percent from February 2004. The index gives a foretaste of housing activity before the association's monthly report on existing home sales, which is based on closings. Contract signings typically precede closings by as many as two months.
In February, the index rose 6.7 percent in the Midwest, 3.5 percent in the South, and 2.4 percent in the Northeast. It dropped 4 percent in the West.
The association previously reported that existing-home sales had fallen 0.4 percent in February from January. The new report suggests they will pick up in March and April, said David Lereah, the NAR's chief economist.
