The U.S. office sector continues to struggle with high vacancies, according to an analysis of market data from CBRE Econometric Advisors (CBRE-EA).
First quarter results showed that the office vacancy rate remained unchanged in the first quarter of 2012 from the previous quarter, at 16 percent. With the current vacancy rate well above the pre-recession high of 12.4 percent, CBRE-EA noted that the office market continues to face headwinds.
"This is a characteristic of a weak job market and just the way tenants are looking at the market," said Arthur Jones, senior managing economist with CBRE-EA, in an interview with REIT.com. "It was a very painful recession with numerous layoffs to endure."
With the U.S. economy still roughly 4 million jobs shy of the pre-recession level of 2007, tenants are smaller now than they were five years ago, according to Jones. They're also trying to optimize their use of office space, he said.
The story was slightly better for retail when it comes to the demand for space..
Most of the retail markets recorded either flat or declining availability rates, space that is actively being marketed and available for tenant build-out within 12 months, in the first quarter relative to the fourth quarter of 2011. Jones said retail is the last property type to begin recovering from this recent recession.
Even with retail supply at historically low levels in the first quarter, CBRE-EA reported that absorption gains were not enough to warrant any movement from year-end availability rates.
"Demand has somewhat returned, but it really depends on which type of retail. Regional malls are the gold standard," Jones said.
On a positive note, the report showed that the national availability rate for the industrial sector dropped 20 basis points during the first quarter to 13.4 percent, continuing a pattern of improvement in the past two years.
"Industrial is on track with what we expected. We've seen more strength in industrial in the last year, much more than office," Jones said. "One of the driving forces is the recovery in industrial production in the United States. The auto manufacturing industry has driven that."
Meanwhile, Jones said the apartment market continues to stand out as the one sector that has fully recovered from the recession. The sector had a 5.1 percent vacancy rate in the first quarter.
While most sectors of the commercial market remain two to three years away from a full recovery, 2012 does appear to be off to a better start than 2011, according to Jones.
"I think that across the board all of the sectors are in a better position and are on more solid footing," he said.