Office Vacancy Rate Hits Two-Year High

New York, NY, Oct. 3, 2008--The U.S. office vacancy rate rose to its highest level in two years during the third quarter, according to a reported released on Friday by real estate research firm Reis Inc.

The rapidly shrinking financial industry and weakening economy took a toll on leasing.

Job losses, expiring leases that are not being renewed and a sharp increase in space available to sublet, pressured rental and occupancy rates in the U.S. office sector, according to a reported released on Friday by real estate research firm Reis Inc.

"This trend will continue in the coming quarters as large financial services firms, among others, rationalize payrolls and consolidate employees as part of the current wave of mergers and acquisitions," Reis Chief Economist Sam Chandan said in a press release.

U.S. office vacancy rose to 13.6 percent, up 0.5 percentage points from the second quarter, its largest one-quarter jump since the second quarter of 2002. The third-quarter vacancy rate was the highest since the second quarter of 2006 and was 110 percentage points higher than its recent low of 12.5 percent set in the third quarter of 2007.

About 23.7 million square feet of office space was available in the third quarter than was leased. About 18.2 million square feet of that was added in just the third quarter, Reis said. That is more than five times the 3.59 million square feet added in the second quarter.

Eleven and a half million square feet of new construction were added to the market in the third quarter.

"The overwhelming uncertainty in the business and economic environment has further undercut businesses' readiness to make new, long-term commitments," Chandan said. "Even amongst firms that are weathering the downturn, many are waiting to sign leases to meet future space needs in anticipation of rising concessions."