Report Shows Office Vacancy Rate Increasing

New York, NY, April 3, 2009--A report today shows that the office vacancy rate nationwide rose to 15.2% from 14.5% in the previous quarter, and likely will surpass 19.3%.

According to Reis, a New York firm that tracks commercial property, that put the vacancy rate above the level during the real-estate bust of the early 1990s, the worst on record.

Effective rents, which include free rent and other landlord concessions, fell 2% in the first quarter to a national average of $24.16, the largest drop since the first quarter of 2002, according to Reis. Sublet space, on average, is going for between 10% and 15% less than what landlords are charging.

Businesses that needed to lease space took advantage of the market weakness to extract concessions from landlords. But the trends exacerbated financial woes for owners, especially those who owe more on their mortgages than their properties' current value.

The weakening commercial real-estate market is posing yet another threat to the ailing economy because it is causing the value of buildings to plummet, often to less than the amount of their mortgages. I

Until now, many have expected commercial real estate to fare better than the housing market, thanks to the lack of rampant overbuilding in the recent cycle. But supply is being dumped on the market instead from layoffs. With as many as 1.5 million jobs expected to be cut this year, more than 50 million square feet of office space is expected to be emptied out for the full year, projects Reis.