Bloomberg News

Office Rents in U.S. Rise to Highest Since 2009 as Leasing Gains

October 05, 2011

Oct. 5 (Bloomberg) -- U.S. office rents climbed in the third quarter as leasing extended a rebound following almost three years of declines, Reis Inc. said.

The average effective rent, or what tenants paid after any landlord concessions, rose to $22.39 per square foot, the highest since 2009’s fourth quarter, the New York-based real estate research company said in a report today. It was up from $22.04 a year earlier and $22.25 in the second quarter. Landlords had a net increase in occupied space of 6.19 million square feet (575,000 square meters), the fourth straight gain.

Hiring by companies in industries such as technology and oil services has partly offset sluggish economic growth nationwide and market turmoil sparked by Europe’s debt crisis. Technology-heavy cities such as San Francisco and San Jose, California, led the growth in rents, along with New York, Boston, San Antonio and Houston, according to Reis.

“Demand for office space remains relatively healthy,” Ryan Severino, an economist at Reis, said in the report. “The next quarter will determine whether fears of an economic slowdown will undermine the nascent recovery of the sector.”

The increase in occupied space, known as net absorption, followed a year-earlier loss of 3.65 million square feet that capped 11 straight quarters of declines, according to Reis data. The pace of gains slowed during the third quarter, with September showing net absorption of about 1 million square feet, down from 2.1 million in August and 3 million in July.

Vacancy Rate Declines

The vacancy rate dropped to 17.4 percent last quarter from 17.5 percent in the previous three months and 17.6 percent a year earlier, according to Reis.

Effective rents in San Francisco climbed 7.8 percent from a year earlier, while tenants paid 4.9 percent more in New York and 2.9 percent more in San Jose, Reis said. Rates were up 2.2 percent in San Antonio and 2.1 percent in Houston.

“There’s not near as much fear in Dallas and Houston and certainly in Austin as there is in many parts of the country,” said Charles Fertitta, a commercial broker at Colliers International in Houston. At the highest-quality buildings in Houston, “rents have spiked to the heights we were at in 2007,” he said.

--Editors: Daniel Taub, Kara Wetzel

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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