North American Office Highlights 4Q 2009
After a miserable year and a half, office leasing markets across most of North America began to show signs of hitting bottom and possibly recording growth before year-end. While both Canadian and U.S. vacancies rose during the quarter, the increases were relatively muted, but more importantly, positive absorption was recorded in both countries. With the U.S. economy posting robust growth in the fourth quarter and moving to a more upbeat labor market, many leasing markets are beginning to exhibit more normal leasing activity after a protracted period of inactivity. The beginning of 2010 is shaping up to be a period of transition from dramatically rising vacancies and falling rents to more modest movements in both, and a possible stabilization by mid-year. The peak in vacancy is now in sight but the long road to recovery will be slow and tentative.
Vacancies nudge higher in the fourth quarter. The U.S. national office vacancy rate moved slightly higher during the fourth quarter, making the ninth consecutive increase. The overall vacancy rate increased 17 basis points during the quarter to register 15.80%. The latest increase in vacancy shows U.S office space occupancy rates have fallen by 3.6 percentage points from the cyclical high recorded during the third quarter of 2007. During Q4 the downtown vacancy rate increased 36 basis points to register 14.7% while suburban vacancies increased 7 basis points to total 16.58%. Canadian vacancy rates also moved higher with CBD vacancies rising 27 basis points to 6.63% compared with suburban vacancies which increased 36 basis points to 8.65%.
After seven consecutive quarters of negative absorption, occupied space registers a small increase. In a surprise turnaround, office absorption turned mildly positive with occupied space increasing by 751,000 square feet. This left year-to-date absorption at -54.4 million square feet (MSF). CBD markets continued to see a worsening in occupied space, but suburban markets more than made up for the softness in many downtown markets with positive absorption. Companies are unlikely to show any renewed appetite for leasing additional office premises in the near future, but recent gains in office-using employment suggest a turnaround could be sooner than many have anticipated. Canadian markets also recorded and increase in occupied space with absorption totaling 730,000 square feet.