By Daryl Delano
National vacancy rates for both office and industrial space fell during the third quarter of 2000 from their levels of three months earlier. This was a remarkable accomplishment in light of the fact that spending for both new office and industrial building construction spending has grown at a rapid rate during the past 12 months.
With vacancy rates falling even as the amount of new space coming on the market has been increasing, it’s clear that — at least through the fall of 2000 — demand was continuing to outpace growth in the amount of new space being added.
But with the economic slowdown, there’s reason to believe that new supply has already begun to exceed the level of demand. Va-cancy rates in both the office and industrial sector will move higher between now and the end of 2001.
The overall (downtown and suburban space combined) national office vacancy rate fell from 9.5% during the third quarter of 1999 to 7.7% during the same three months of last year, according to data from the most recent survey conducted by commercial brokerage and research firm CB Richard Ellis.
The Q3-2000 level of vacancies in office buildings was a slight 0.2 percentage point lower than during the April-June period of 2000, so the market was still very tight during the fall of last year despite the large amount of new construction completed during the past six years.
During the July-September period of last year, the vacancy rate for downtown office space was just 6.2% — a level that was 2.5% lower than during the third quarter of 1999. Suburban vacancy rates moved lower as well — while remaining well above the downtown level — with last year’s third-quarter rate of 8.6% coming in 1.5 percentage point lower than during the third quarter of 1999.
San Jose, Calif. (at 1.1%); San Francisco (1.9%); and Boston (1.9%) were the tightest office markets among major metropolitan areas nationwide during the fall of last year. There were, however, a few major markets in the country that were still recording office vacancy rates well above the national average through September, including Dallas/Fort Worth (15.3%), Houston (12.4%) and Los Angeles (11.1%).
The national availability rate for industrial space declined from 7.8% during the second quarter of 2000 to 7.7% in the year’s July-September quarter — only a slight easing but enough to bring industrial vacancies to their lowest level in almost five years.
The Q-3-2000 industrial vacancy rate was 0.4 percentage point lower than during the same quarter of 1999. This CB Richard Ellis survey measures the supply of available space in manufacturing plants and warehouse buildings of 100,000 sq. ft. or larger.
Vacancy rates for industrial space as of the fall of last year ranged from lows of less than 4% in Austin, Texas; Albuquerque, N.M.; and Portland, Ore., to highs of more than 15% in Baltimore and Fort Lauderdale, Fla.
Industrial vacancy rates have fallen most sharply during the past year in the Washington (down 6 percentage points between Q3-1999 and Q3-2000), Austin (-4.4 points) and Phoenix (-4.4 points) metro areas. Industrial vacancy rates have moved higher during the past 12 months in Dallas/Fort Worth (+3.5 percentage points), St. Louis (+2.8 points) and Fort Lauderdale (+2.5 points).