The streak of positive absorption and declining or unchanged vacancy rates continued through 1Q12 for the office, industrial, and retail sectors, according to a recent CoStar Group report. While the rate of absorption slowed compared to recent quarters, each of the sectors remained firmly in positive territory.
Office absorption declined to 11.5 million square feet in 1Q12, which is down from 16.0 million sf in 4Q11 but still nearly double the rate in 1Q11. Lack of new space added to the market continues to drive absorption. Nationwide construction deliverables totaled 5.0 million sf in 1Q12. The report notes that 8.0 million sf of office space is expected to be delivered in 2Q12.
Similar to office, industrial saw nearly no net completions in 1Q12, which pushed down vacancy, boosted rents, and kept absorption positive at 20.9 million sf. Most of the top warehouse markets experienced year-over-year occupancy gains. Chicago, Los Angeles, Inland Empire, Calif., and Houston accounted for one-third of demand growth.
Retail vacancy remained unchanged, and rents declined by 0.7 percent in 1Q12. Net completions stood at 4.3 million sf, the lowest level since 1Q11. “We forecast completions of retail space to remain depressed for the year,” says Walter Page, director of research at CoStar. Whether or not retail is rebounding depends on the market. San Francisco’s 1Q12 retail vacancy stood at 2.8 percent while Phoenix logged a 12.1 percent vacancy rate. The report attributes the tepid performance to the slugging housing market and the increasing popularity of Internet retailing.