Office recovery mixed at 2012 halfway point

Office recovery has been uneven through the first half of the year.

The office market has experienced an uneven recovery, as it has been slow across much of the country, which may be disheartening to some property management companies, according to a report from Avison Young.

Vacancies in the overall office market were at approximately 12 percent at the end of the second quarter. When looking specifically at metropolitan statistical areas examined in the firm's Mid-Year 2012 U.S. Office Market Report, the average vacancy rate was 13.9 percent, which was an improvement from the same point in 2011, when it was 14.6 percent.

The Class A rent average in these markets was $46 per square foot in the central business districts, the report explained. For suburban markets, rents averaged $28 per square foot.

"As we close the books and look back at the first-half performance of 2012, we were hoping to be further along the recovery curve, at least in the United States," said Mark Rose, chair and CEO of Avison Young.

In Chicago, the vacancy rate dropped to 14.1 percent during the mid-year point of the year, which was an improvement from last year's 15.8 percent, the report explained. New York had a negative absorption rate, as the figure rose to nearly 11 percent. However, the city has hope that activity will ramp up as the year closes. This is due to leasing activity traditionally being slow in the summer and improving into the fall and early winter.

"U.S. office markets have remained largely oversupplied, especially when compared with Canadian markets," said Earl Webb, president of U.S. operations for Avison Young. "Construction levels are constrained and that has contributed to the gradually falling vacancy, but the key to widespread growth will be job creation."

Development has increased in many cities, as 25 million square feet of construction has begun throughout the U.S., the report noted. Nearly 80 percent of this development is in New York, Washington, D.C., and Boston. New York currently has more than 8 million square feet in development, while Washington, D.C., has 7.4 million square feet and Boston has an additional 4 million square feet.

Webb added that tenants have the most pull when it comes to the market, at present. This trend is not expected to change for the remainder of the year, as there is still a large amount of uncertainty in the market.

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