by Calculated Risk on 1/06/2020 09:44:00 AM

Reis reported that the office vacancy rate was at 16.8% in Q4, unchanged from 16.8% in Q3 2019. This is up from 16.7% in Q4 2018, and down from the cycle peak of 17.6%.

From Reis Senior Economist Barbara Byrne Denham:

The office vacancy rate was unchanged at 16.8% in the fourth quarter. It was 16.7% in the fourth quarter of 2018 and 16.4% at year-end 2017.

Both the national average asking rent and effective rent, which nets out landlord concessions, increased 0.5% in the fourth quarter. At $34.31 per square foot (asking) and $27.87 per square foot (effective), the average rents have increased 2.6% and 2.7%, respectively, from the fourth quarter of 2018. This was close to the 2.7% growth rate in 2018 and above the 1.8% growth rate in 2017.

Net absorption jumped to 12.2 million SF in the quarter, 35% above the 9.0 million SF in the third quarter. Likewise, construction was 12.5 million SF, 6% higher than the 11.8 million SF completed in the third quarter. With new completions of just under 40 million SF in all of 2019, overall office supply growth trailed the 2018 addition of 49 million SF. However, net absorption of 30.1 million SF in 2019 was much stronger than the 24.0 million SF in 2018. Nevertheless, vacancy is 0.1% higher than a year ago.
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Many remain concerned about the fate of WeWork’s occupancies as the co-working company had over-expanded and may need to reconsider some of its office leases. This could raise vacancies in a few metros, but it’s too early to draw any conclusions.

The 2019 results extend the protracted expansion to nine years – a near decade that has been dogged by sluggish growth relative to both the apartment sector and historical expansions. The 16.8% vacancy rate is one-third higher than the low vacancy of 12.6% in 2007 and more than twice the rate (8.3%) in 2000. Likewise, annual rent growth of 2.7% is above the low national inflation rate of 1.8%, but well below peak rent growth of 10.5% and 12.3% in those respective years.

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate was at 16.8% in Q4.  The office vacancy rate had been mostly moving sideways at an elevated level, but has increased over the last two years.

Office vacancy data courtesy of Reis.