Office market continues climb

The office market improved to start the year.

Cassidy Turley reported that the office market has made strides in 2012, as the second quarter continued to show strong signs of recovery.

The net absorption of office space during the second quarter totaled 11.1 million square feet, which was an improvement from the previous quarter's figure of 7.8 million square feet. In addition, the office vacancy rate declined to 15.8 percent, which was 10 basis points lower than the previous quarter's figure. Overall, this was the seventh straight quarter where the rate fell.

New office construction during the second quarter was approximately 39 million square feet, which was actually two-thirds lower than the normal amount of new supply for this period, the report explained.

"The office sector is simply mirroring the slow trajectory of the economic recovery," said Kevin Thorpe, chief economist at Cassidy Turley. "It's far from robust, but given the pullback from the construction industry, even minimal demand is enough to drive vacancy down."

Cassidy Turley also explained that during the second quarter, the average rent at asking was $21.70 per square foot, which was five cents or 1.5 percent higher than the same point in 2011, according to the report. Citing Real Capital Analytics, the firm said that office sales are still down significantly. In May, total sales volume was $4.1 billion, which was more than 31 percent lower than in May 2011. Overall year-to-date sales fared much better, as they were more than 70 percent higher than in 2011, for a total of $13.2 billion.

"The rent growth is still largely concentrated in the Class-A segment of the market," said Thorpe. "This is quite typical of a recovery cycle. Tenant demand shifts decidedly to high-quality buildings, and then eventually demand spreads to lower-grade properties."

Property managers in different parts of the country have not had the same success, the report said. The South had a net absorption rate of 7.6 million square feet, which was a 2 million square-foot improvement quarter-over-quarter. In addition, the Midwest experienced a rise to 779,000 square feet from the previous quarter's 659,000 square feet. However, the Northeast absorbed a rate of negative 993,000 from the previous quarter's gain of 768,000. The West had a gain of 3.7 million square feet, down from the first quarter's figure of 4.5 million square feet.

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