Office Market is Showing Signs of Life

One of the best barometers of an improving economy is reflected by a positive trend in office vacancy. As reported January 4, 2011 by the Wall Street Journal, the fourth quarter of 2010 was the first quarter since the end of 2007 that office properties in the U.S. registered an increase in occupied space (see chart below).



Other important tidbits from the article:

• Business vacated 138 million SF of office space between January 2008 and September 2010.


• The national office vacancy rate is 17.6%.


• Nationally, 2.5 million SF (net) were absorbed in the fourth quarter of 2010 after having negative absorption for the previous 11 consecutive quarters.

Portland is following the national trend, so says Gordon King of Collier's International. Mr. King is probably the closest thing we have to a "resident expert" when it comes to the Portland office market. In a recent conversation with me he had these interesting tidbits about Portland:

• Last year the Portland MSA had 600,000 SF of net absorption of office space, two-thirds of which occurred in the 4th quarter.


• The vacancy rate for the overall Portland market is in the 15% range with the downtown core being the lowest at 8% and th suburb office market the highest at around the mid- to high-20% range.


• Rents have not yet stabilized but the rate of decline is slowing. Mr. King estimates that rental rates will decline another 5% before bottoming out.


• In order to get the office vacancy rate in the 7 to 8% range, which is considered a stabilized market, 3,000,000 SF of office space would need to be absorbed. Assuming net absorption of 800,000 SF annually, it will take about 3 to 4 years to achieve a stabilized market.

The Portland office market is showing signs of improvement though it has a long way to go. However, it's just one more indication that the local economy in on the mend.

Sources: Preliminary Q4 Trends Announcement, ReisReports; Fresh Signs of Life in Office Market, Wall Street Journal, January 4, 2011; Light at the End of the Tunnel (It's Not Another Train), Ted Jones Blog, January 6, 2011.