U.S. Office Market Has Smallest Occupancy Gain in a Year

The U.S. office market had its smallest increase in net occupancies in a year in the second quarter as job growth slowed, Reis Inc. (REIS) said.

Net occupancies climbed by 4.14 million square feet (384,000 square meters) in the second quarter, the least since 2.73 million square feet was added a year earlier, according to the New York-based property-research firm. The gain in occupancies, the sixth in a row, compared with 6 million square feet in the first quarter.

Effective rents, or what tenants pay after landlord incentives such as a free month are included, rose to $22.72 per square foot from $22.66 in the first quarter and $22.27 a year earlier, Reis said. The national office vacancy rate of 17.2 percent was unchanged from the first quarter and down from 17.5 percent a year earlier.

Demand for office space has slowed amid an anemic economic recovery. U.S. employers added 69,000 workers in May, the fewest in a year, pushing up the jobless rate to 8.2 percent from 8.1 percent, according to the Labor Department.

“The pace of improvement remains slow, keeping rents moored near 2007 levels,” Ryan Severino, senior economist at Reis, said in today’s report. “Markets where five-year lease terms are common could face substantial rollover risk this year” as leases expire.

A dearth of construction has helped rents and occupancies. A net total of 4.2 million square feet of office space was completed in the three months ended June 30, down from 5.6 million square feet in the first quarter and 4.6 million square feet a year earlier, according to research firm CoStar Group Inc. (CSGP)

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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