Mid Year Office Leasing Report

CoStar released its Mid Year Office Leasing Report today and you can find it here.  Among its conclusions were that despite 1) slower than expected job growth, 2) concern about the U.S. debt-ceiling crisis and 3) the European debt crisis, the office leasing market continues to make improvements.  While this seems counter-intuitive, given that the unemployment rate still stands at 9.2%, they cite businesses “gradually add(ing) workers and absorb(ing) space” as contributing factors.

Their data shows tenants “trading up” spaces in the down market.  With the price of Class A space 10% lower than in 2008, many businesses are taking this opportunity to improve their image.  This is reflected in an uptick in vacancy of Class B buildings. 

The report goes on to conclude that if companies start expanding again, office rents may start increasing ahead of demand growth.  These speculative increases in rental rates would reflect landlord’s hope that the lack of new development (of office space) will support the higher rates, despite the data from the New York market which shows that an increase in rental rates (7.3%) resulted in negative absorption (of space) around 1 million square feet. 

Another conclusion that landlords probably aren’t thrilled about is that the number of square feet per employee is dropping precipitously.  From 2003-2008, for each new employee added, companies increased their office footprint by approximately 233 sq ft.  Reflecting changes in the way offices operate–including “hoteling”–this number is now just 88 sq ft.  

If you have any questions on this report or how it translates into negotiable information,  contact me at stuart@byobroker.com.

Downtown vacancy lowest since end of 2009?

Faithful BYOBlog readers (okay, I’m hoping the masses will find this site soon), when you see headlines like this you can be sure of two things:

1) You need to read the details, where you will find that although direct vacancy for downtown space dropped to 14.5% from 14.9% in the second quarter, most of the demand for new space was driven by a handfull of firms like Groupon and McKinsey & Co, as opposed to broader demand from small to medium sized firms, which would signal a more optimistic outlook

2) This is little like putting a bow on a pig.  While Net Absorbption, which measures the change in leased and occupied space from quarter to quarter, was positive for the fourth quarter in a row (549,090 sq ft), the positive trend seems limited to Class A buildings.  Class B buildings actually saw vacancy edge up, while Class C buildings had a small drop.  The general concensus is that there is still downward pressure on demand for office space.

The takeaway from this article is that landlords are looking for any good news to signal a bottom on rental rates.  When tenants approach them without a broker—or BYOBroker–they can justify higher rates with articles like these.  Without the credible market information we provide, you will be negotiating on heresay which in the end will cost you dearly.