Office Rents Could Be Close to Hitting Bottom

A combination of limited supply growth and anticipated stabilization of the jobs market could mean that office rents may return to positive growth sooner rather than later.  That’s the opinion of Victor Calanog, a researcher at Reis, Inc., one of the nation’s leading providers of commercial real estate performance information and analysis.

According to Calanog, “Office properties took the brunt of the recession last year, with rents falling at record rates.  Effective rents cratered by 8.9 percent, the largest decline on record in almost 30 years of Reis history.  Hidden amidst the devastation were signs that office occupancies were faring better than other property sectors.  While multifamily and retail vacancies were hitting highs unseen in two decades or more, the national office vacancy rate was 17 percent at the end of 2009, the highest level since 2004.”

The percentage of office properties that had reduced their rents hit 86 percent in the 4th quarter of 2009.  Calanog predicts that office rents in Washington, D.C., could be higher than those in Manhattan by the end of 2010.

The good news is that recent labor market figures are encouraging, with the unemployment rate holding steady at just under 10 percent nationally.  Wall Street firms have started hiring again and job losses in New York were not as dire as predicted.  “Unexpected events can derail this recovery, and economic growth is expected to be fragile for the near term, but as more positive news emerges we may be on track to seeing rents grow as early as next year,” Calanog said.  “If this is the case, transaction volume and prices may pick up quickly to capitalize on the next upswing.”