Office Markets Stagnate on Soft Hiring

By bcchrisc • October 2nd, 2012

In today’s Wall Street Journal Page A8  (ping me at cmc@braddockcommercial.com if you would like me to email you the article)

From Wall Street Journal Office Markets Stagnate on Soft Hiring
By ELIOT BROWN
Companies added office space at a slow pace in the third quarter, leaving vacancies in U.S. office markets at high levels amid sluggish growth in the labor force. Occupied office space rose by about 5.4 million square feet in the three months through September, growth of 0.16%, according to a new report from real-estate research firm Reis Inc. The office-vacancy rate ticked down to 17.1% from 17.2% the prior quarter, said Reis, which tracks 79 metropolitan areas. Rents sought by landlords nationwide rose 0.2% to an average $28.23 per square foot, continuing their anemic growth.  Companies have been slower to expand than they have in previous recoveries. In all, employers have added just 36.7 million square feet since they began expanding their office space again in the first quarter of 2011. That is well shy of the 141 million feet of office space that businesses shed between 2008 and 2010. “It’s probably going to take until the middle of this decade before we see more pronounced improvement,” said Ryan Severino, an economist at Reis. The market’s bright spot is the technology sector. Cities with a growing presence of social-networking and other Internet-focused firms, from San Francisco to Austin, Texas, to Seattle, were among the top-performing metro areas in rent growth in the past year.  Take New Relic Inc., a fast-growing, four-year-old firm that monitors performance of websites for other companies. It already has run out of room just 11 months after moving into a 14,000-square-foot office in San Francisco. The company recently signed a lease to take about 55,000 square feet in a nearby building at 188 Spear St.  “The way we look at it, we want to run out of space,” said Chris Cook, the company’s chief operating officer.  Heading in the other direction is the Washington, D.C., market, which saw strong gains early in the recovery but since has cooled amid efforts to control federal budget deficits. Over the past 12 months, the vacancy rate has risen 0.3 point to 9.5%.
In many markets, demand has been cool in part because tenants are using space more efficiently. Law firm Pillsbury Winthrop Shaw Pittman LLP has tentative plans to go into 105,000 square feet in Washington, D.C., from more than 140,000 square feet it occupies in a building a half mile away. Because it is relying more heavily on digital storage, the firm doesn’t need the file cabinets and library space it has now, among other changes. “Even planning for growth, it’s smaller in terms of square feet,” said partner Christine Nicolaides Kearns.
Write to Eliot Brown at eliot.brown@wsj.com
Rises and Falls The top and bottom cities for growth in office rents sought by landlords in the past 12 months.
TOP 5 San Francisco4.1% New York3.5% San Jose, Calif.2.3% Houston2.2% Austin, Texas2.1%
BOTTOM 5 Dayton, Ohio-0.3% Omaha, Neb.-0.3% Palm Beach, Fla.-0.3% Colorado Springs, Colo.-0.7% Las Vegas-1%
 —Source: Reis Inc. A version of this article appeared October 2, 2012, on page A8 in the U.S. edition of The Wall Street Journal, with the headline: Office Markets Stagnate on Soft Hiring.

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