U.S. Office Market Records Largest Quarterly Decline in Vacancy Rates Since Mid-2007; Miami Posts Strongest Vacancy Drop
U.S. CBD vacancy rate at two-year low with leasing activity on track for record year
According to a new report from Cushman & Wakefield, the midyear 2011 statistics for the U.S. Central Business District (CBD) office market, which show that the second quarter marked the largest quarterly decline in the overall average vacancy rate since 2007.
The overall average vacancy rate for U.S. CBDs fell to 13.9 percent at midyear 2011, down 0.7 percentage points from 14.6 percent at the end of the first quarter of this year, and at its lowest level since midyear 2009, when vacancy measured 13.7 percent. Vacancy rates declined in 71 percent of the markets tracked by Cushman& Wakefield, with the strongest drops in markets including Miami, Midtown South Manhattan and Washington, D.C.
"Miami is enjoying both strong expansion activity from both some of our existing office tenant base as well as an inflow of new businesses setting up regional offices to manage their Latin American operations out of Miami", said Scott Strickland, senior vice president of Jones Lang LaSalle's Miami office.
Strickland further commented, "Miami is the primary financial hub for Latin America, and because of such, many financial services companies continue to grow. There has already been over 80,000 square feet of office space absorbed in the central business district (CBD) year-to-date in 2011, which has driven down Miami's CBD vacancy rate from a high of over 26% in mid-2010 to around 21% today, a 4% to 5% decrease over the last year."
The trigger for the significant decline in vacancy was a notable increase in new leasing activity in U.S. CBDs, up 43.9 percent from midyear 2010 levels. With 41.8 million square feet in new office leases signed year-to-date, the first half of 2011 proved to be the strongest in terms of leasing activity since 1998, when 44.5 million square feet in leases were completed in the first half of the year. In the second quarter of 2011 alone, 23.6 million square feet in leases were signed, the highest three-month total since the third quarter of 2006.
"At this point in the year, there has been more new leasing activity than we had at midyear 2006 and 2007 - two extremely strong years," said Maria Sicola, executive managing director and head of Americas Research for Cushman & Wakefield. "If activity continues at this pace, 2011 will be on track for a historic year."
With no new construction completed in U.S. CBDs in the second quarter, year-to-date construction completions remained at the first quarter total of 2.3 million square feet. An additional 2.1 million square feet of new office space is expected to be completed by year-end, with projects underway in Washington, D.C., Houston, Miami and Portland.
Soaring levels of leasing activity and no new construction boded well for absorption, totaling 7.1 million square feet year-to-date, compared to negative 441,498 square feet at this time last year. With 6.4 million square feet absorbed in the second quarter, absorption was positive for the third consecutive quarter.
Average rental rates were $35.86 per square foot at midyear 2011, a $0.63 decline from this time last year.
"Leasing activity and declining vacancies have given us a strong indicator in which direction the market is moving," said Ms. Sicola. "While the national average for rental rates remained stagnant, more than half of the U.S. markets we track did see an increase, and looking forward the remainder are expected to follow suit by year-end."