Aug 24 2010

Office-Leasing Rebound Could Be Deceiving

Wall Street Journal

From the WSJ:

Even as the office market enjoys a rebound of leasing activity, some businesses are giving landlords the shivers by figuring out how to use less space per employee.

Companies that sat on the sidelines during the darkest days of the economic downturn are increasingly making leasing commitments. In the 12 months that ended June 30, office tenants signed 161.3 million square feet in leases nationwide, according to Studley, a commercial real-estate brokerage firm. That is a 5.7% increase over the 12-month period ended in March.

But in many cases, tenants are taking less space than they had before—both because they have fewer employees and because they are able to use space more efficiently. In New York, for example, three of the five largest deals of the second quarter involved tenants either taking the same amount of space or less.

“Until tenants shift into expansion mode … the market will be engaged in a process of musical chairs,” states Studley’s second-quarter report on New York.

The trend bodes poorly for an office market struggling with a national vacancy rate of 17.4%, the highest since 1993, according to real-estate research firm Reis Inc.

Concerns are particularly acute for the hundreds of office properties that are in precarious financial condition because they are worth less than the mortgages that were made during the boom years. They need to fill space to boost rental revenue—and values.

Read more at WSJ

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