by Calculated Risk on 7/01/2014 08:31:00 AM

Reis released their Q2 2014 Office Vacancy survey this morning. Reis reported that the office vacancy rate was unchanged in Q2 compared to Q1 at 16.8%. This is down slightly from 17.0% in Q2 2013, and down from the cycle peak of 17.6%.

From Reis Senior Economist Ryan Severino:

The national vacancy rate was unchanged during the first quarter at 16.8%. This reflects the pattern in vacancy rate movement that we have seen since the market began recovering during the first quarter of 2011. Quarters of slightly declining vacancy have often been followed by quarters with no change in the vacancy rate. During that interval we have not had a quarter with a vacancy compression greater than 10 basis points. Over the last twelve months, the vacancy rate is down just 20 basis points, on par with last quarter, indicating that in aggregate we are not yet seeing an acceleration in the recovery in the office market. National vacancies remain elevated at 430 basis points above the sector's cyclical low of 12.5% recorded during the third quarter of 2007. Although job growth is accelerating, it is likely that newly created office jobs are taking up under‐utilized space and not yet creating much demand for the leasing of new or additional space.
emphasis added

On absorption and new construction:

Net absorption increased by 2.759 million square feet during the second quarter. This is the lowest quarterly figure since the fourth quarter of 2010, the last time net absorption was negative in the US. Last quarter, net absorption was the highest quarterly figure since before the recession so that is a stark reversal in only one quarter. Net absorption averaged roughly 8.2 million square feet over the last four quarters so this represents a significant change from recent performance in the market.

Construction increased by 3.884 million square feet during the second quarter. This is the lowest quarterly figure since the first quarter of 2013. Although the national vacancy rate did not change, new supply outpaced net absorption during the quarter.

On rents:

Asking and effective rents both grew by 0.7%, respectively, during the second quarter. These figures are essentially the same as last quarter. Asking and effective rents have now risen for fifteen consecutive quarters. However, we continue to see slow but ongoing acceleration in rent growth over time. Asking rent growth was 1.6% during 2011, 1.8% during 2012, and 2.1% in 2013, and 2.2% over the prior 12 months during the first quarter. During the second quarter, the 12‐month change in asking rent increased to 2.5%.

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 unchanged at 16.8% in Q2, and was down from 17.0% in Q2 2013. The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010, and Q1 2011.

Office vacancy data courtesy of Reis.