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.