Office Vacancies Drop as Economy Strengthens

Reis reported that U.S. office vacancies—the national average—dropped from 16.8 percent in the third quarter of 2014 to the 16.7 percent in the fourth quarter.

By Dees Stribling, Contributing Editor

Reis reported on Monday that U.S. office vacancies—the national average—dropped from 16.8 percent in the third quarter of 2014 to the 16.7 percent in the fourth quarter. The rate is down a bit more since the fourth quarter of 2013, when it stood at 16.9 percent (at its most recent high, Reis put vacancies at a peak of 17.6 percent in 2010), but on the whole the rate has been slow to drop, even as the economy strengthens.

The tightest office market in the country is Washington, D.C., with a vacancy rate of 9.2 percent, notes Reis. New York was second tightest, coming in at 9.5 percent. Driving the vacancy declines in most markets is net office space absorption, which was up 28 percent in 2014 compared with the previous year, to 32.5 million square feet. That was the largest total for that metric since before the onset of the recession.

Effective rents gained 3 percent in 2014, according to the company. Two California markets, San Jose and San Francisco, enjoyed the highest year-over-year increases in office rents, 7.2 percent and 6.7 percent, respectively, while Houston was third with a healthy increase of 5.1 percent.

Energy prices drop precipitously in ’14

The Energy Information Agency reported on Monday that crude oil and petroleum product prices ended the year with the largest price drops of all major commodities in the S&P Goldman Sachs Commodity Index (GSCI). Among commercial property types, retail stands to benefit most of a lower cost of energy, as consumers divert more of their income toward other kinds of spending, though industrial stands to benefit indirectly as the people buy more and the cost of shipping drops; hospitality might also benefit as people travel more.

The first eight months of 2014 were much like 2013, as energy commodities remained in a relatively stable price range, the EIA says. But during the last four months of 2014, crude oil and petroleum product prices fell dramatically, with the energy component of the GSCI—crude oil but also natural gas, heating oil and other fuels—fell 43 percent from the start of the year. The S&P GSCI precious metals, industrial metals, and grains indices declined only 6 percent, 8 percent and 8 percent, respectively, over the same period.

Thus U.S. gas prices—which affect many consumers more than any other energy price—keep dropping. According to AAA on Monday, gas prices have been declining now for a record 102 days, with the average for a gallon of regular now at $2.199, down from $2.711 a month ago and $3.317 a year ago.

Reportedly on worries about a soft European economy, Wall Street took a dive on Monday, with the Dow Jones Industrial Average off 331.34 points, or 1.86 percent. The S&P 500 declined 1.83 percent and the Nasdaq fell 1.57 percent.