Boston-based Torto Wheaton Research, a provider of commercial real estate forecasting, analysis, and consulting services, recently announced that office demand dramatically slowed in the 1st quarter of 2001. Net absorption in the fifty-three markets that the firm tracks was down from a positive 19.9 million square feet in the 4th quarter of 2000 to a negative 16.9 million in the 1st quarter. According to the firm, there has never been a period of negative net absorption in the sum of the markets, even during the recession of the early 1990s.
Torto Wheaton Research’s analysis indicates that an increase in sublease space and a shutdown in demand are two probable components to the falloff in net absorption. Although these are significant numbers, the 1st quarter results do not change Torto Wheaton Research’s view on longer-term trends. The forecast for 2001 has net absorption at about 50 percent of last year’s level, rising vacancy rates, and a falling rate of rent growth.
One reason for the negative trend, the firm suggests, is that in today’s more efficient real estate leasing market, tenants are waiting for some relief to the high rents. Torto Wheaton Research’s data on asking rents are showing stability across markets with only San Francisco and Honolulu declining more than 5 percent over the 1st quarter. Landlords may be seeing decreased effective rents through other adjustments. The fact that most have not been forced to adjust their marquee numbers is an indication of the healthy state that the markets were in before the 1st quarter. Landlords also may not wish to give up some of the lofty rent levels too early, especially since most markets are still tight, the research speculates.
For more information, contact Torto Wheaton Research.
