Economy Boosts Demand for Office Space
The office vacancy rate fell for the 12th straight quarter from October to December as a strong U.S. economy boosted the demand for space, a study found.
The office vacancy rate nationwide was 8.9% at end of the year, down from 9.0% in September and 9.8% a year earlier, according to CB Richard Ellis Services Inc., the largest manager and broker of commercial property.
The U.S. real estate industry is benefiting from a strong economy that has shrugged off the severe financial problems plaguing Asia, Russia and elsewhere to grow at a better-than-expected 5.6% annual rate in the last three months of 1998. And with unemployment at its lowest rate since 1970, companies are adding space to house their burgeoning work forces.
“Our tenants are, in general, looking to expand their operations,” said Louis Conforti, director of capital markets for Chicago-based Prime Group Realty Trust, one of the city’s biggest commercial property owners. “There are very few large blocks of space available.”
Vacancy rates have declined since peaking at 18% in 1992 as companies added workers at a record pace to meet increased demand for goods and services. This has allowed landlords to raise rents as much as 20% in markets such as San Francisco, Boston, Seattle and New York.
Even with a dearth of space available, a weak market for real estate stocks has kept a lid on new construction.
Investors have taken advantage of the situation by spending billions of dollars scooping up trophy properties such as New York’s Chrysler Building, San Francisco’s Embarcadero Center, Boston’s Prudential Center and Chicago’s Sears Tower.
San Jose was the metropolitan area with the lowest vacancy rate in the nation, 3.2%. It was followed by Seattle, 4.1%; San Francisco, 4.6%; Minneapolis/St. Paul, 4.9%; and New York, 5.0%.
Not all markets are experiencing strength. Fort Worth, Salt Lake City, Oklahoma City, Nashville and Dallas all saw vacancy rates rise, mainly because of new construction.
Of 54 major metro markets, 30 saw vacancy rates decline from a year ago, led by Florida’s Palm Beach County, where the rate fell 4.3 percentage points, CB Richard Ellis said.
