Office vacancy rates increased for the fifth consecutive quarter both downtown and in the suburbs, according to the latest statistics from CB Richard Ellis, a sign that the economy continues to take its toll on the local market.
The suburban office vacancy rate jumped to 20.27 percent in the first quarter, from 19.52 percent in the prior period, driving the suburbs to the highest vacancy levels since the first quarter of 2004. The downtown market fared slightly better, with vacancy rates increasing only about half a percentage point, to 15.80 percent from 15.27 percent in the previous period.
It is the first time in two years that the downtown market outperformed the suburbs, said Mike Cagna, research coordinator for CB Richard Ellis.
“It seemed like downtown kind of held on a little better this time around than the suburbs did,” he said.
Downtown benefited from a lack of new office construction, he said, a problem that has plagued the suburbs in recent quarters.
Still, Cagna said he wasn’t surprised by the results.
“It pretty much is following the overall economy,” he said. “We’re kind of sluggish everywhere.”
As a result, landlords are working harder to woo tenants, offering shorter contracts, more flexible terms and even items such as furniture and equipment to complete deals, said Pete Alveal, vice president of the office advisory team at Meridian Real Estate.
Tenants also are remaining cautious, he said, by renewing leases on a short-term basis to minimize their financial exposure.
“No one is doing long-term renewals,” he said, “unless there’s something great to be had out there.”
Rental rates largely held steady in the first quarter. Downtown rates averaged $17.47 per square foot, slightly higher than the $17.19 average in the suburbs.
Cagna said he expects the market to remain slow until at least the summer, when the economy could improve.