Colliers recently published it's 4th Quarter 2010 Office Highlights report for the US and Canada.

Summary:

• Office Markets Look and Feel a Lot Better - But Higher Rents Still Some Way Off.
• U.S. office vacancy rate down sharply - U.S. office market has unquestionably turned the corner.
• Office occupancies up for a third consecutive quarter.
• Rent picture again mixed.
• Office construction slows to a trickle.

Some other interesting results:

• Highest US Downtown Office Vacancy Rate - San Jose/Silicon Valley at 27.9% (down from 35% the previous quarter)
• Highest US Suburban Office vacancy Rate - Las Vegas at 38.6%
• Most Absorption for 2010 - Washington DC metro area at over 4.1 million square feet (Midtown Manhattan a close second at nearly 3.6 million square feet)
  
• Lowest US Downtown Vacancy Rate - Raleigh/Durham at 5.3% (with a 33.8% suburban vacancy rate)
• Averages -  Downtown Vacancy Rate 16% - Suburban Vacancy Rate 18.3%
  

More on Office Vacancy Rate

According to a recent article in the Wall Street Journal, the office recovery is leaving the suburban office markets behind.

"Statistics show that suburban office markets were hit harder by the recession than their downtown counterparts and are recovering more slowly. The national office vacancy rate in downtowns was 14.9% at the end of the third quarter, the same level as in early 2005—while the suburban vacancy rate hit 19%, 2.3 percentage points higher than in 2005, according to data firm Reis Inc."

The reason:

"Suburbs have been clobbered harder by a recession that hit businesses that are often based there, including mortgage lenders and home builders. Downtowns, on the other hand, have benefited from being home to less hard-hit sectors of the economy, such as government, and companies that have recovered more quickly, such as big banks."

Read ther full article at Wall Street Journal

According to an recent article at Reuters.com, the US is approaching the turning point in the office space downturn and should start to see a slow recovery over the next couple of years.

"The U.S. office vacancy rate is expected to peak in the middle of next year at 16.8 percent, as it did in 2003, and is expected to fall very slowly to 16.4 percent by the end of 2011 and to 15.3 percent by the end of 2012, according to CBRE Econometric Advisors.

Real estate research firm REIS Inc also sees a slow office recovery. REIS sees the U.S. office vacancy rate peaking at 17.7 percent at the end of this year and then slipping to 17.4 percent by the end of next year.

"There's nothing in the job market that's pointing to a quick lease-up of space," said Victor Calanog, REIS director of real estate."

The good news is that the bottom appears to be near.  The bad news is that it will be a long slow recovery that will most likely parrallel the economic recovery of the US.

There are a few major markets that are already seeing good improvement. Both Manhattan and Washingtom DC has seen a lot of leasing activity. Ironically, they are the two most expensive markets in the US.

More on Office Vacancy Rate

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A recent article on Bloomberg.com discussed the impact of "Shadow Space" on the recovery of the office space market. The officeFinder Blog discussed the affect of "Shadow Space" on the market back in April 2010. We defined it as "Shadow Office Space is office space that is currently under lease by a tenant, but which is not being used due to layoff of employees." Here is what the Bloomberg article had to say:

"The U.S. office sector will be the slowest to recover as companies absorb empty space and advances in technology reduce the need for square footage, said Kenneth Rosen, a professor at the University of California, Berkeley.

Unoccupied “shadow inventory” accounts for 3 percent to 5 percent of total business leases, and that space will be filled before firms sign new rental agreements, Rosen, chairman of Berkeley’s Fisher Center for Real Estate and Urban Economics, said at a conference in San Francisco. Cloud computing and other tech advances let employees work away from offices, further reducing space needs, he said.

“Every company has shadow space,” Rosen, who also runs Berkeley-based hedge fund Rosen Real Estate Securities LLC, said in an interview yesterday. Most U.S. cities face prolonged vacancies because of the surplus, excepting Washington, New York, San Francisco, Boston and parts of the Silicon Valley, where technology and venture capital spur leasing, he said."

Read more

According to a recent report from Colliers International, it appears that the U.S. office space market has turned the corner and absorbed 6.5 million square feet of office space during the third quarter of 2010 compared to only 1.8 million sq. ft. of absorption activity for the previous quarter.

It was the major office space markets that showed the largest office leasing absorption for the quarter. Among those, the Washington, DC office space market showed over 882,000 square feet of net absorption during the quarter, resulting in an office space vacancy rate of only 11.6%, the lowest in the nation. The Washington, DC office rental rate increased to $52.32 per square foot, an increase of $1.06 over the previous quarter. The rental rate and absorption gains are mostly due to the addition of new government jobs and a limited supply of new office space coming on line during the quarter.

Also of interest, during the 3rd quarter the amount of sublease office space nationally continued to decrease, to only 7.6%of total office space vacancy compared with 8.2% at the end of the 2nd quarter.

The national office space vacancy rate decreased slightly from 16.3%to 16.2% during the third quarter, but it still is above the 16% at the end of the 3rd quarter 2009.

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