Office Vacancy Rate unchanged in Q4 at 16.3%
Reis released their Q4 2017 Office Vacancy survey this morning. Reis reported that the office vacancy rate was unchanged at 16.3% in Q4, from 16.3% in Q3. This is up from 16.1% in Q4 2016, and down from the cycle peak of 17.6%.
From Reis Economist Barbara Denham:
Maintaining a steady balance between added supply and positive net absorption, the office market recorded no change in vacancy for the third quarter in a row. Currently at 16.3%, the national office vacancy rate has held steady most of the year climbing from a low of 16.1% at year-end 2016. Construction fell to 7.0 million square feet from 8.3 million last quarter and 10.7 million in the fourth quarter of 2016. Net absorption, or occupancy growth, was in line with construction at 5.2 million. Last quarter’s net absorption was 5.3 million square feet, while the fourth quarter of 2016 saw net absorption of 12.9 million square feet. Indeed, the fourth quarter generally sees the highest completion and net absorption numbers in the year; thus, this quarter’s lackluster results were especially noteworthy.
The sluggish occupancy growth numbers have kept a lid on rent growth. Although office rents increased 0.6% in the quarter – higher than previous quarters growth rates of 0.4% – asking and effective rents have both only increased 1.8% since the fourth quarter of 2016. This is the third straight quarter that saw a year-over-year effective rent growth rate below 2%.
This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual). Reis reported the vacancy rate was at 16.3% in Q4. The office vacancy rate is moving sideways at an elevated level.