by Calculated Risk on 10/01/2015 01:17:00 PM

Reis released their Q3 2015 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined to 16.5% in Q3, from 16.6% in Q2. This is down from 16.8% in Q3 2014, and down from the cycle peak of 17.6%.

From Reis Senior Economist and Director of Research Ryan Severino:

During the third quarter, net absorption exceeded construction which caused vacancy to decline by 10 basis points to 16.5%. This marks the fourth time in the last five quarters that vacancy declined and kept the rate at its lowest level since the second quarter of 2009. Slowly and quietly, the recovery in the office market is gathering pace. 2015 is shaping up to be the best year for demand for office space since 2007, before the recession. Year‐to‐date figures for most metrics are already well ahead of last year. Because the improvement in the office market has been so gradual, it has largely gone unnoticed by many in the industry. However, improvement is becoming stronger and more consistent which portends better times ahead for the office market over the next five years.
...
Occupied stock increased by 9.865 million square feet during the third quarter. This was an increase versus last quarter and indicating of the gradual strengthening of demand for office space. Moreover, year‐to‐date figures show even more dramatic improvement. Through the third quarter net absorption for 2015 totaled 25.304 million SF. This exceeds the year‐to date figure from 2014 by 5.380 million SF, or roughly 26%. ...

New construction of 7.674 million SF is a bit of a decline from last quarter. While many lenders still require preleasing in order to provide construction and development financing, speculative new construction is slowly returning to the market. Admittedly, speculative projects remain at very low levels, well below cycles past, but their existence provides another sign of the ongoing recovery.
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Asking and effective rents grew by 0.6% and 0.7%, respectively, during the third quarter, marking the twentieth consecutive quarter of asking and effective rent growth. These growth rates are more or less in line with the growth rates from last quarter. However, even though quarterly rent growth did not accelerate, year‐over‐year rental growth rates for both asking and effective rents did accelerate. Effective rent growth of 3.5% is quite strong for a market with such an elevated vacancy rate.

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 16.5% in Q2.

Office vacancy data courtesy of Reis.