US Office Market Forecast August 2009
Total office space demand in the US, as measured by the occupied stock, is predicted to continue declining in the second half of this year at a faster rate compared to the first half. In particular, the occupied office space stock is predicted to decline by 42.8 million square feet compared to a 32.2 million square feet decline in the first half of 2009, resulting in a total negative absorption of 75 million square feet for the year. Note that in 2008 total office space demand increased by 12.2 million square feet. Despite the rapidly deteriorating demand, completions of new office space in the second half of 2009 are predicted to reach 29.9 million square feet, 7.6% higher than the 27.8 million square feet completed in the first half of this year. Thus, on an annual basis, a total of 57.7 million square feet of new office space are expected to enter the market this year, representing a 15.4% drop compared to the 68.2 million square feet completed in 2008. Supply growth is expected to decelerate considerably in 2010, with completions of new space dropping to 27.2 million square feet, representing a 53% reduction compared to the predicted completions for 2009. With rapidly declining demand and rising supply the US office vacancy rate, which increased from 13.9% in the fourth quarter of 2009 to 15.5% in the second quarter of this year, is predicted to continue climbing and reach 17.4% by the end of the year. With further declines in demand and increases in supply, the vacancy rate is predicted to continue climbing in 2010 and average 18.9%. As a result of the weakening market, US office rents are predicted to continue sliding downwards, registering declines of 2.3% and 2.5% in the last two quarters of 2009. On an annual basis office rents are predicted to plunge 14.1% on average in 2009, and an additional 10% in 2010. The NAR/TWR August 2009 office market forecast portrays a rapidly worsening picture for the US office market in the next 18 months, which will be marked by negative net absorption, high vacancy rates and largre decreases in office rents. However, it should be emphasized that office market behavior in many local markets will likely deviate considerably from average national performance. Office property investors need to assess carefully the vacancy and rent prospects of the local markets within which they operate, and appropriately incorporate such prospects in their cash flow models.
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