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Entries Tagged as 'Office Vacancy Rate'

US Office Vacancy Rate Hits 16-year High

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NEW YORK (Reuters) – The U.S. office vacancy rate  in the first quarter reached its highest level in 16 years, but the decline in rents eased and crept closer to stabilization, according to a report by real estate research firm Reis Inc.

The U.S. office vacancy rate rose to 17.2 percent, a level unseen since 1994, as the market lost about 11.6 million net square feet of occupied space during the first quarter, according to the report released on Monday. The U.S. vacancy rate inched up 0.2 percentage points from a quarter earlier and was 2 percent higher than a year ago.

"As labor markets stabilize, we expect occupancies and rents to require another 12 to 18 months before showing signs of improvement, given typical lags in commercial real estate," Reis director of research Victor Calanog said in a statement. "Even as occupancy continues to deteriorate, we're observing signs of renewed leasing activity across different metros."

The U.S. office vacancy rate hit a cyclical low of 12.5 percent in the third quarter 2007.

Rental rates fell an average of 0.8 percent in the first quarter, a less steep decline that seen last year. Asking rent fell 4.2 percent from a year earlier. Factoring months of free rent and landlord contributions to space improvements for each tenant, effective rent was down 7.4 percent from a year earlier.


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Rise of Virtual Offices Cuts into Conventional Leases

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In the troubled world of commercial real estate, where available space far exceeds what is currently needed, landlords have another reason to reach for the antacids:

Demand is growing for virtual offices.

That's not a patch of beach where you plant a chair, crack open a cold one and your laptop, and declare yourself "at the office."

A virtual office is shared work space - meeting and conference areas, reception desks, copy rooms - used on an as-needed basis, at a cost that could be considerably less than rent under a conventional multiyear office lease.

It includes shared support services, too. Depending on the provider, that could mean a receptionist along with a team of administrative assistants to help develop marketing plans, create business cards and brochures, even assist at trade shows.

And sometimes, just a stiff drink is in order. At American Executive Centers' virtual-office facility in King of Prussia, manager Gwen Bonsall Donnon dipped into the office-party stash one day to come to the aid of a client who declared after a rough day: "I need a rum and Coke."

Donnon also is keeper of the props. In her office, among other things, is a box of framed photos belonging to one of the virtual-office clients. She puts them out when he visits, to help personalize his rented space.

"We even put trash in the trash can so it looks like he's been in there," she said.

The Philadelphia region has at least five virtual-office providers offering a range of space - even in such posh addresses as One Liberty Place - and services. Costs range from at least $60 a month (for a corporate address to which mail can be sent) to $460 a month.

At American Executive, believed to be the region's largest locally based virtual-office provider (seven facilities), business is up 75 percent over the last year, said president G. Michael Howard. Lawyers account for 30 percent of new clients; entrepreneurs and start-up companies make up an additional 25 percent.

And for the first time in its 27-year history, Howard said, American Executive's virtual-office clients outnumber conventional tenants, 550 to 375.

For years, virtual-office users were typically global companies wanting a place to hold meetings during temporary visits.

But the concept's appeal has grown recently, in large part because of the recession, said Bruce Bard, owner of Intelligent Office, a virtual-office operator in Marlton with about 135 clients.

"When the times get tough, people look to drop their overhead expenses - to work from home or find cheaper alternatives without losing their professionalism," Bard said.

Nancy Fox, general manager of The Office Works in Trevose, called its virtual offices "the hybrid space between a post office box . . . and an actual physical office" secured by a long-term lease.

"It's a way to take that step forward during these hard times for people who are afraid to spend money," Fox said.

Owners of three local businesses with virtual offices shared their experiences last week.
Expand reach, enhance image

Brian Lureen still leases 2,500 square feet in Malvern's Great Valley Corporate Center for $5,800 a month.

But a year ago, the 47-year-old president and chief executive officer of Heritage Fincorp Inc., a wealth-management company, added through American Executive virtual-office space at the Radnor Financial Center for a monthly base price of $330. Some services are extra.

So satisfied is Lureen with the results - he has been able to expand his business reach to other markets without the expense of a conventional office lease and hiring more office staff - that he is about to enter into a second virtual arrangement. It will be with Executive Office Link Inc., of Malvern, where American Executive does not have a presence, but where Lureen has a home.

Why not just have a home office? The need for some space between his personal and professional life.

"I want to separate my house from clients and regulators," Lureen said.

At home, he also would not have the Radnor Financial Center's stunning decor: marble lobby floors, soaring skylights, lush garden boxes, soothing fountains.

"The virtual office enhances not only your business model, but also your professional image."
Minimalist, yet serviceable

Brian Pradon set his laptop on the cherry desk before him, contributing the sole personal touch to his virtual office in King of Prussia. The walls were bare, but for an American Executive Center-provided framed picture of the Great Wall of China bearing an inspirational message: "Teamwork. Many hands. Many minds. One goal."

Pradon shrugged off the austere surroundings. Personal effects, he said, belong "at home. Now, I'm on work mode."

At 31, the Valley Forge resident is operations manager for his family's Mack Employment Services, a staffing company with headquarters in Reading. It has five branch locations: Lancaster, Allentown, Harrisburg, Ephrata, and King of Prussia, the latter being the only virtual office. If such an option were available in the other markets, Pradon said, he would switch to it.

Converting from a traditional office lease to a virtual arrangement has saved his company about $1,800 a month, "which, to a small company, is significant," he said. That is especially true for his, he added, since Mack's business dropped 35 percent from 2008 to 2009.

In Pradon's virtual office, for $205 a month, his calls are answered and rerouted to him if he is on the road. His mail is collected. Packages are signed for. Copy machines are just across the hall - and bagels and cream cheese are served every Friday.

"You have what you need to do the job," Pradon said.

Lower rent, fewer hassles

Carole A. and Brian P. Cleere are virtual-office novices. On Feb. 1, they cut the cord on their conventional office, at the Wynnewood Shopping Center for the 23 years they have practiced law together.

They have jettisoned an $1,700 monthly rent and the hassles of maintaining an office with a staff of "one-and-a-half people" to answer the phone and handle some secretarial work.

In exchange, the Cleeres said, they have gained access for $330 a month (plus incidentals) to more extensive support services than they had, including paralegals, and more impressive digs - a 15,000-square-foot suite of meeting rooms and accessory areas on the third floor of a nine-story office building just off City Avenue.

"A stepped-up image" is what Brian Cleere, 71, called it, minus two staples of law-firm interiors - framed law degrees on the walls and shelves of brainy books.

Legal journals are so yesterday, it seems, replaced by online research opportunities. As for the professional certificates?

"They are in my home office, so I feel protected," Brian Cleere said. "My ego is still there.


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Now is the Time to Act?

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According to a recent article in the North Bay Business Journal, now is the time to act to take advantage of the bottom of the market:

"The title of the recent Sonoma State University economic outlook conference “The Time is Now” couldn't have more meaning than it does with the current office real estate market. We are at the bottom of the market, and now is the time to take advantage of the current opportunities before it’s too late."

I wish it were true, but as far as I can tell we have a ways to go before the actual bottom is reached in the North Bay or anywhere else. Now, that does not mean that now is not a good time to negotiate a great office deal.  Landlords are hungry and hurting and some fabulous lease of purchase deals are available to those willing to dive in. Until the unemploymet rate starts to drop, the bottom is still in the future, probably within a year or maybe even two.

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The Case for a "Job-Full" Recovery

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Fidelity Viewpoints (excerpts)
By Lisa Emsbo-Mattingly, Director of Economic Analysis
February 19, 2010

"I find the leading indicators extremely optimistic for job growth. The best long-term indicator of employment is corporate profitability, which became more robust as 2009 progressed. (See chart below.) At the same time, the U.S. economy grew at an annualized rate of 5.7% in the fourth quarter of 2009, the fastest pace in six years, according to the U.S. Commerce Department. As corporate profits continue to recover in 2010—and I expect they will—this can translate into job creation."

"Temporary hiring is a reliable leading indicator of future permanent hiring. At this stage of the economic recovery, corporations are still averse to hiring full time. But demand for temp workers surged in the second half of last year. During the previous two business cycles, temp hiring eventually led to permanent hiring. The Conference Board's index of employment trends is rising at the fastest six-month pace since 1994."

Office Vacancy Rate

Don't Be An Economic Hypochondriac

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A newsletter I received today is a bit more positive on the recovery and does make a good point that despite high unemployment our national office vacancy rate is better that expected.

Monday Morning Outlook

Brian S. Wesbury - Chief Economist First Trust
Robert Stein, CFA - Senior Economist First Trust

Over the past year, as we have defended our forecast of a V-shaped recovery and the economy has clearly turned upward, two things have happened.  First – slowly and quietly the consensus forecast for economic growth has been lifted – to roughly 3% real GDP growth from an anemic 2%.  We expect this to continue as the consensus forecast continues to move toward our 4%+ forecast.
Second – the list of worries over the economy has grown.  Remember credit card fears?  Well, delinquency rates are declining now.  What about Credit Default Swaps (CDS’s)?  Yeah, what about them?  As you read this, AIG is writing the value of these contracts up.  And who could forget Dubai?  Oh, you already did?
Well, no matter how many of these economy killers disappear into the mist of history, there are more to take their place.  A commercial real estate collapse, the “real” unemployment rate, housing foreclosures, ARM resets, deficits, government-created uncertainty, the lack of bank lending, universal healthcare, cap and trade, looming tax hikes, China, Greece, and don’t forget the unwinding of economic intervention by the Fed and Treasury and the petering out of stimulus.
It’s almost as if the better the economic data, the more things people worry about.
We don’t want to say that all these worries are not important, or misplaced.  There are problems and issues, but we do believe they are being overblown.  For example, the national office vacancy rate is 17.5% – high – but still lower than it was in the 1990-91 recession, and lower than one would expect when the unemployment rate is 9.7%.  And now with unemployment declining, vacancy rates should fall as well.
Many people fear a “real” unemployment rate of 16.5% (which includes the official unemployment rate plus marginally attached workers).  But this rate is always above the official unemployment rate and moves along with it.  In other words it offers no new information.  Everyone knows unemployment is high, but recoveries always begin when unemployment is high.
Government deficits are high, and it is true that government activity is creating uncertainty, but this has stirred political push-back rarely seen in the US.  It is very likely that the awakened and renewed political energy showing up these days will finally force Congress to address the issues of its long-term unfunded liabilities and its out-of-control spending.  In other words, the worry and fear may finally produce action.
Finally, bank lending, or the lack of it, is bothering many.  Conventional wisdom suggests that the economy cannot recover (at least strongly) without a pick-up in bank lending.  However, this theory leaves us wanting.  After declining in the past two years, total loans and leases held by commercial banks stood at $6.76 trillion at the end of 2009, which was above year-end 2007 levels or any time before that.  In other words, bank lending is currently at levels above those that existed during what most people call a “bubble” in bank lending.
Much of this is about attitude.  If you want to find things to worry about, you always can.  It’s like hypochondria.  But, in the end, with monetary policy accommodative and the panic over, the economy is heading upward.  And it’s funny how so many problems seem to dissolve when growth gets underway.

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