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BOSTON-Economic slowing continues to chip away at US office markets, according to reports from Colliers International and Grubb & Ellis. The reports show overall office vacancies in the country increased in the second quarter, with absorption declining, sublease space rising and rents holding steady in CBDs and slipping in suburban markets.

The nation’s office vacancy rate inched upward for the third consecutive quarter, rising by 27 basis points to 13.24%, according to the Boston-based Colliers. Grubb & Ellis pegs the national vacancy rate at 14% as of mid-year, an increase of 50 basis points in the second quarter on top of an identical 50-basis point rise in the first quarter.

Ross Moore, executive vice president and director of market and economic research at Colliers, says in the report that “tenants have taken a ‘wait-and-see’ attitude and landlords have stepped up their efforts to fill vacant space as the nation’s economic slowdown shows few signs of abating in the near term.” The report cited the economic slowdown and increasing job losses, especially in the housing and financial services sector, among the reasons for the weakening of the office market.

Of the 59 markets tracked in detail by Santa Ana, CA-based Grubb & Ellis, vacancy increased in 39 markets and fell in 20 during the second quarter. The Colliers tally shows 33 CBDs where vacancy increased and declining vacancies in 18 CBDs. In the nation’s suburban markets, vacancy rates rose in 38 areas and declined in 16. The nation’s office space inventory totals about 1.4 billion sf.

In the past four quarters, vacancy has risen most steeply in Southern California’s Inland Empire to 17.5%, an increase of 8.2%, according to Grubb & Ellis. Factors in the Inland Empire include a sharp contraction among housing-related tenants at the same time that developers are delivering new office product, which was started when financing was readily available.

Among the markets bucking the trend were those driven by energy, agriculture, commodities and aerospace, according to Grubb & Ellis. It named Oklahoma City and Wichita, KS as examples.

Grubb & Ellis’s research team reports New York City took the honors for lowest vacancy among major US markets at 5.6% while noting vacancy nonetheless increased by 70 basis points in New York City during the second quarter. It blamed Wall Street layoffs that have mounted to around 22,000 at latest count.

The market posting the highest vacancy was Detroit, “where the domestic auto industry continues to downsize in order to survive,” Grubb & Ellis’ researchers explain. Detroit’s mid-year vacancy of 22.6% was 1.5% higher than one year ago.

The Grubb & Ellis report also found quarterly net absorption slipped into the red for the first time in more than five years to a negative 3.3 million sf. Space offered for sublease increased for a fourth consecutive quarter to 86 million sf. Since mid-2007, sublease space has increased by 18%, compared with the doubling in sublease space that occurred during the comparable period of the slump that began in 2000. Grubb & Ellis’ team expects absorption will remain negative well into 2009.

“Expect the US office vacancy rate to plateau by the end of next year at close to 17%–not far from its peaks set in the prior two cycles of 17.9% in the first quarter of 2004 and 18.0% in the third quarter of 1991,” the Grubb & Ellis team concludes.

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