by Calculated Risk on 9/29/2017 10:21:00 AM

Reis released their Q3 2017 Office Vacancy survey this morning. Reis reported that the office vacancy rate was unchanged at 16.1% in Q3, from 16.1% in Q2. This is also unchanged from 16.1% in Q3 2016, and down from the cycle peak of 17.6%.

From Reis Economist Barbara Denham:

Continuing its steady but sluggish pace, the office market recorded no change in vacancy rate in the third quarter. Currently at 16.1% for the second quarter in a row, the national office vacancy rate has moderated between 16.0% and 16.1% for the last seven quarters. Construction fell to 6.5 million square feet from 10.4 million last quarter and 8.1 million in the third quarter of 2016. Net absorption, or occupancy growth, was in line with construction at 5.4 million. Last quarter’s net absorption was 4.8 million square feet, and third quarter 2016 net absorption was 3.7 million square feet.

Although the office market seems to be stalling in this expansion with a persistently high vacancy rate relative to previous expansions — vacancy fell to 12.5% in 2007 from 17.0% in 2003 — one could argue that the market is in equilibrium as occupancy growth moves in line with inventory growth. Still, office employment growth in 2017 for the metro areas has averaged 2.0% (year-over-year through August), down from an average annual growth rate of 2.4% in 2016 and 2.8% in 2015. This means that office demand growth has been slightly weaker over the last eight months than in previous years. ...

Asking and effective rents have both increased 1.5% since the third quarter of 2016. This is the lowest year-over-year rent growth rate since 2011 and the third quarter in a row that year-over-year effective rent growth was below 2%.

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 16.1% in Q3.  The office vacancy rate is moving sideways at an elevated level.

Office vacancy data courtesy of Reis.