Don’t expect vacancy rates in the office sector to plummet anytime soon, at least not according to the latest research from Cassidy Turley.
According to the company, demand for office space remained sluggish in the first quarter of 2013 partly because companies are changing the way they do business. Companies continue to reduce the amount of real estate they need to operate. They’re doing this in many ways, everything from letting more employees work from home more of the time to only providing workers desk space when these workers are actually in the office.
The result? Businesses today are using less space, something that has helped create today’s sluggish office market.
According to Cassidy Turley, U.S. office markets absorbed 3 million square feet of office space in the first quarter. That’s down from the 23 million square feet that office markets absorbed in the fourth quarter of 2012. In fact, the first-quarter demand numbers were the weakest since the U.S. economic recovery began in 2010.
The report also said that office vacancy rates remained at 15.4 percent in the first quarter, 200 basis points higher than where they stood before the recession hit.
“Market fundamentals continue to improve, but at the same time, the office sector is clearly going through a transformation,” said Kevin Thorpe, chief economist at Cassidy Turley, in a written statement. “Many businesses are reassessing space needs and recognizing they can function perfectly well with a smaller, more efficient footprint. As a result, job growth is not giving us the same pop in demand that we have grown accustomed to.”
This is important. Even though the national unemployment rate is trending down — it fell to 7.6 percent, according to the latest numbers — this hasn’t translated to a big boom in office demand.
Average asking rents in the first quarter of 2013 stood at $21.63 a square foot. This figure did not change from the same quarter in 2012.
The news wasn’t all gloomy, though, for the Midwest. Cassidy Turley’s report said that Minneapolis ranked as the fifth-strongest U.S. office market in terms of demand.
