Within the Bloomberg administration’s proposed budget, released Thursday for the fiscal year starting July 1, there are some prognostications about the office market for the next year: Rents have hit bottom and will stay flat, as vacancy will rise and then fall.
From the budget summary, created by the Office of Management and Budget:
While employment losses are expected to subside in 2010, there is significant risk that additional supply will cause the market to stay soft. As a result, vacancy rates will average 12.9 percent in 2010 and only gradually improve in 2011, remaining at an elevated level in the out-years as new supply comes on line. The increased vacancy rate has already caused asking rents across the primary market to fall from an average of $85 per square foot in mid-2008 to $62 per square foot in the first quarter of 2010. As vacancy rates stabilize in 2010, asking rents are not expected to fall significantly going forward, but increases are not likely either. Even though the commercial rental market appears to be nearing its trough, commercial sales are expected to improve only slightly compared to the dismal performance in 2009, when only five transactions valued at over $100 million were recorded. Weak credit markets and a general aversion to commercial real estate investment will keep investors at bay in the near term.