It turns out the 4th quarter of 2009 may not have been so bad after all, according to many market analysts, especially in that all important gauge of office rentals. For many investors, office rentals tend to reflect the health of the economy overall.office space London
When rentals continue at a fluid pace, the business climate Is healthy. When the number of rentals or lease renewals go down, the message read by many is that businesses are generally contracting, choosing not to risk new space and overhead in the anticipation of tough times ahead.
Late 2009 economic reports across most sectors, of course, continued their downward slide right up to the end of the year. Even so, the office market in the U.S. posted a somewhat unexpected positive new absorption for the last quarter.
Another bright spot in the reports was an increase of 48,000 office jobs in December. Even the financial sector posted an increase of 4,000 December jobs, the first upside report since July 2007. Overall, office-using employment is up 154,000 jobs since the end of August 2009. For commercial property investors-especially those wondering how 2010 will evolve -these numbers certainly merit closer examination.
The turn-around may not be here yet, but positive components have have started falling into place–all else being equal.
CoStart Group, a leading commentor on U.S. Markets, recently reported in one of their webinars regarding a positive net absorption of about 6 million square feet for the quarter, which is about 6 months earlier than was expected. Gross leasing activity grew from about 60 million square feet of activity in the first quarter of 2009 to more than 90 million from October to December. While not a clear indication of a market turnaround, it certainly can be called a step in the right direction.
Only the future can tell us how predictive that last quarter really was. As the economy continues to adjust, it could take some time for positive numbers to flow fully through to the office market. Recent GDP reports have been encouraging, but employment numbers continue to hover around 9.5 to 10%, as often happens with a recession.
Whether there are or are not the bright spots in office jobs market, we could still see net negative absorption all through 2010. What will be interesting is whether the fact that this is an election year will speed up a recovery to any noticeable extent.
Nationally, that absorption bump in the 4th quarter brought the national vacancy rate to about 13.1%, but total office space availability is still increasing to almost 18%. That may temper the reported Q4 positive absorption over the short term.
Rents, incidentally, are expected to continue their downward slant even as demand stabilizes. Office rents nationally declined by almost 10% on the average. Many landlords outside the largest metro areas are using concessions to lure new tenants, holding off on rent reductions as long as possible. At some point, barring a huge turnaround in the economy, asking rents may have to be slashed even more. That’s why the news about rising office market statistics have some wondering better days are ahead–or not.