According to a report from CoStar Group, the office market sector posted unexpectedly good results in the fourth quarter. Locally, this is not so unexpected as our industry saw a rise in activity following Labor Day. The explanation submitted for consideration: the office sector added jobs. In fact, according to federal government jobs data, the office sector increased for the fourth consecutive month in December, increasing by 48,00o. The financial sector posted its first increase in employment since mid-2007 by adding 4,000 in December. Since the end of August, 154,000 jobs have been added.
The leasing activity mirrored this data with 60 million square feet of activity in the first quarter of 2009 compared to 90 million square feet of activity in the fourth quarter. U.S. office markets recorded around 6 million square feet of positive net absorption (about two quarters earlier than predicted).
However, it was a rough year for landlords, as asking rents declined by 10% on average. Landlords in some markets have been quick to lower rents, but most have been holding out and relying more on concessions to attract tenants. 2010 will likely push that theory out the door and the remaining owners will have to slash their rates to keep up with the market.
Here is the breakdown by region:
- The Northeast lead the nation in positive absorption with 4.8 million SF with NY leading the way at 1.6 million SF followed by Philadelphia with 900,000 SF
- The West Coast had negative net absorption 2.1 million SF between Washington, Oregon and California
- The Southeast posted negative net absorption of 11,000 SF with Atlanta being the big drag at a loss of 500,000 SF
- The Upper Midwest had positive absorption of 436,000 SF with Minneapolis carrying the bulk of it
- The Mountain West had 778,000 SF of positive net absorption, led by Denver with 600,000 SF
- The Mid-Atlantic had 1.35 million SF of positive net absorption, D.C. being the big winner with 900,000 SF
- The Midwest saw negative net absorption of 527,000 SF thanks to Detroit’s dismal post of 1.6 million SF loss