Although the US office market has experienced its seventh consecutive quarter of negative absorption, the amount of space being added to the market has slowed substantially, an early sign that absorption levels could stabilize early in 2003.
According to a survey by Colliers International, the national office market recorded just 5.3 million square feet of negative absorption, a significant decrease from the -9.5 square feet recorded in the second quarter of 2002 and the -28.0 square feet during the same period last year.
The national office vacancy rate for the third quarter rose a modest 0.5 percent to 16.2 percent, with the U.S. vacancy rate expected to peak in the first quarter of 2003 at 16.7%.
Also encouraging is the much slower pace of sublease space being added to the market. For the third quarter vacant sublease space increased by a modest 2.1 percent. Technology firms, telecommunications companies and the financial services sector continue to be the main sources of weakness, while healthcare, defense, education and biotechnology represent areas of growth.
Complicating any forecast for the U.S. office space market is the labor market, which remains weak. After showing tentative signs of growth during late summer, labor markets once again appear to be unable to post substantial gains. The economy shows signs of slowing down in the fourth quarter after posting modest growth in the third quarter.
'The latest office statistics need to be put in perspective', said Ross Moore, Vice President and Director of Research for Colliers International. 'We have been going in reverse for so long, that just the prospect of sitting still is considered a real milestone. We still have a few quarters of flat to moderately negative growth to come, but the deep plunges of 2001 and early 2002 are clearly behind us,' he added.
Landlords continue to respond to market conditions by decreasing rents and offering substantial incentives and concessions to tenants. Asking rents during the third quarter in downtown markets were down 2.7 percent nationwide, with suburban markets down 1.4 percent. Leasing activity continues to be centered on small deals.
Colliers International is a global partnership of independently commercial real estate firms. The organization´s 6,600 employees span the world in 234 offices in 51 countries. On a worldwide basis, Colliers manages 442 million square feet, and has revenue of $US 800 million. For more information about Colliers International, visit our website at www.colliers.com .