The national office market, including Milwaukee, continued to feel the effects of the recession during the second quarter, as office tenants gave back 25.2 million square feet of space, according to the second quarter office report from Colliers International, a global real estate services firm.
As with the previous quarter, national office vacancies kept rising – increasing nearly one full percentage point – from 14.48 percent at the close of Q1 to 15.45 percent at the end of the April through June period.
The Milwaukee market was particularly weak, with downtown office vacancies rising to 19.1 percent in the quarter, up from 15.9 percent a year earlier. The Milwaukee suburban office vacancy rate increased in the quarter to 16.5 percent from 15.2 percent a year earlier.
The national increase in vacancies appeared in both downtown and suburban office markets, and across all classes of office space. Older, less desirable suburban office space showed the highest vacancy increases, and prime office space in downtown markets showed the smallest vacancy increases.
Of the 61 cities surveyed by Colliers, 51 recorded negative net absorption for the second quarter.
Rental rates for office space fell in nearly all markets surveyed by Colliers. Overall, the downtown average Class A asking rate measured $41.15 (weighted) – down 5.1 percent from the end of Q1. The drop nearly matched the 5.4 percent rental rate decrease posted in the first three months of the year. Since year-end 2008, when it measured $45.87, downtown Class A weighted average rent has fallen 10.5 percent.
"While it looks like the worst is past, the economy, and more importantly the labor market, is expected to show anemic growth in the near term – leading to an extremely sluggish office space market for the foreseeable future," said Ross Moore, executive vice president and director of market & economic research for Colliers International. "There are now more reasons for optimism compared to just a few months ago, but indicators such as the recently-issued lending data show firms have little appetite for expansion and instead remain focused on reducing costs and watching their bottom line. We expect further increases in office vacancy and falling rents for the balance of 2009."
The Milwaukee affiliate of Colliers International is Colliers Barry.
