Boston, MA

Boston, MA, July 28, 2009– The national office market continued to feel the effects of the recession during the second quarter, as office tenants gave back 25.2 million square feet (msf) of space, according to the Q2 office report from Colliers International, a leading global real estate services firm. As with the previous quarter, national office vacancies kept rising – increasing nearly one full percentage point– from 14.48 percent at the close of Q1 to 15.45 percent at the end of the April through June period.

This increase in vacancy was non-discriminatory. It appeared in both downtown and suburban office markets, and across all classes of office space. It’s interesting to note that older, less desirable suburban office space showed the highest vacancy increase, and prime office space in downtown markets showed the smallest vacancy increase. What truly highlights the severity of the economic downturn in both CBD and suburban markets – in all space classes – is almost across-the-board negative absorption. Indeed, of the 61 cities surveyed by Colliers, 51 recorded negative net absorption for the second quarter.

The second quarter’s absorption, which measured negative 25.2 msf, was a miniscule improvement compared to the Q1 absorption rate of negative 25.3 msf. In terms of new supply, second quarter completions totaled 16.6 msf, which was up slightly from the 15.4 msf added to the market in the first quarter of 2009.

At the halfway mark of the year, 65.2 msf of office space was still under construction, and this pending supply was split evenly between CBD and suburban submarkets. Construction activity is expected to decline further, but is already at half the levels recorded just one year ago.

Rental rates for office space fell in nearly all markets surveyed by Colliers. Overall, the downtown average Class A asking rate measured $41.15 (weighted) – down 5.1 percent from the end of Q1. This drop nearly matched the 5.4 percent rental rate decrease posted in the first three months of the year. Since year-end 2008, when it measured $45.87, downtown Class A weighted average rent has fallen 10.5 percent.

In the suburbs, office rental rates, on average, measured $27.37 psf – down 1.2 percent during the second quarter. Again, this was a slightly milder drop than the 1.4 percent seen in the first quarter. Combined with first quarter declines, suburban year-to-date rents are down 2.6 percent.

"While it looks like the worst is past, the economy, and more importantly the labor market, is expected to show anemic growth in the near term – leading to an extremely sluggish office space market for the foreseeable future," remarked Ross Moore, executive vice president and director of market & economic research for Colliers International. "There are now more reasons for optimism compared to just a few months ago, but indicators such as the recently-issued lending data show firms have little appetite for expansion and instead remain focused on reducing costs and watching their bottom line. We expect further increases in office vacancy and falling rents for the balance of 2009."

Office Vacancy Rates, market-by-market

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 12,700 employees span the world in 294 offices in 61 countries. On a worldwide basis, Colliers manages 1.1 billion square feet, and has revenue of $US 1.6 billion.

Contact Information

Ross Moore
Executive Vice President, Market and Economic Research
ross.moore@colliers.com

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