Sunday, April 29, 2012

Record High Office Vacancy

As reported by the SacBee, The Sacramento region office vacancy rate increased in this year's first quarter to an all-time high of 23.74 percent, according to commercial real estate brokerage firm Cornish & Carey Commercial Newmark Knight Frank.
The rate increased 0.36 percent from the previous quarter, reflecting 366,000 square feet of additional vacant space in the region's 22 office submarkets. This is nearly equivalent to the size of "The Emerald Tower" being almost completely empty at 300 Capitol Mall which is an 18-story office tower and 383,238 square feet.
In all, vacant office space in the region totals nearly 16 million square feet. This is not the economic recovery we have been told was right around the corner. 

4 comments:

Anonymous said...

I guess it means we shouldn't expect any office high-rises to be build anytime soon.

Zwahlen Images said...

I think the last high-rise Sacramento will see built for quite a long while will be the proposed Sacramento County Courthouse that just got a 10% cut. I wish I could see ten years into the future because I don't like the direction things are going right now for the region.

Anonymous said...

This is not just a problem with Sac, it is a problem everywhere in California and probably the whole country, though I couldn't say for sure. The market is supposed to set the rates for rents but the system is not working. If I want to start a business and am looking at renting space, I can't afford the rates and so neither can anyone else without a big loan. Now people are wary of taking out big loans and prices for space should go down when vacancy is high. But it doesn't. I am not sure what the solution is, maybe a tax on vacant rentals to encourage the management companies to be more flexible, or eliminating the ability to write off losses caused by vacancies, but it seems like the market is too tightly controlled (by owners and managers) to allow prices to reflect supply and demand.

Zwahlen Images said...

For the last several years office space rental per square feet has dropped in the region, but if there is no growth or demand to fill it, it won’t matter how discounted the price falls. How would a tax encourage growth? This is a model that tends to discourage an activity, like cigarettes. Taxing management companies because they can’t fill space in a depressed market makes no sense.

Management companies can only lower the rent so low because at some point the owners also have be able to cover costs to cover to maintain the building and pay the mortgage. If the space can’t be filled for a long enough period of time they will both go out of business. This has been happening around the country for quite some time. At that point, the next owner will most likely lower the price to fill the building because they bought it for less than what the previous owner paid for it.
Colliers-Sacramento has a report out for the first quarter of 2012 showing the asking lease rates falling steadily since 2009… the markets correcting on its own. Read more here:

http://www.colliers-sacramento.com/REActions_Office_Volume1.pdf