- The office vacancy rate increased to 15.9% in Q2 2009, up from 15.2% in Q1 2009, as new completions outpaced absorption of occupied space. This marks the sixth consecutive quarter of declining occupied space. - Asking rents fell 1.4% and effective rents fell 2.7% in Q2 2009, the largest declines since the first half of 2002 during the economic impact of 9/11. Continued weakness in labor markets suggests limited upside in the near term. - The national trends indicate the office market remains under pressure with high vacancy rates and falling rents, though the pace of declining occupied space may slow in the second half of the year if stabilization occurs.

1. Apartment, Office, and Retail Sector Trends
Preliminary Trends Announcement for Second Quarter 2009 Reis Findings in the
2009
Quarter 2
National Apartment, Office, and Retail Sectors
the effects of 9/11, both economically and psychologically. Declines in
Victor Calanog PhD asking rent indicate that landlords are in a tough position of having to
Director of Research lower offering prices even before they come to the table with new and
Reis Inc existing tenants to negotiate concessions. The magnitude of deteriora-
tion in effective rents, at negative 2.7% for the current quarter, is ex-
New York — July 7, 2009 ceeded only by three (quarterly) time periods in Reis’s history: the three
quarters surrounding and immediately following 9/11 (3Q2001, 4Q2001
and 1Q2002), and the fact that negative effective rent growth acceler-
ated this quarter relative to the first quarter of 2009 is consistent with
our assessment that we have yet to observe any kind of clear, systematic
evidence that the office market is bottoming out and has begun to re-
Release Schedule: The Preliminary Trends Announcement for the first cover.
quarter will be updated on Wednesday, July 8, and Thursday, July 9,
concurrent with the release of Apartment and Retail Sector findings.
The office vacancy rate increased in 66 of the 79 primary metropolitan
areas; effective rents fell in 72 out of 79 markets, indicating a continued
broad-based rise in concessions from the first to the second quarter of
2009.
Office Sector Trends — Completions of approximately 14 million square
feet in the second quarter, along with weakness in absorption of space,
pushed the national vacancy rate to 15.9%, up 70 basis points from the
first quarter of 2009. This represents a 270 basis point increase in va-
cancy year-over-year (2008Q2 to 2009Q2) and a 340 basis point jump in
vacancy from the third quarter of 2007, when the office sector reached
its cyclical low in terms of the lowest vacancy rate (12.5% vacancy
achieved in 3Q 2007). This 70 basis point increase in vacancy for the
second quarter of 2009 matches the 70 basis point increase last quarter,
indicating that office properties are still facing extreme pressure in a
troubled leasing environment.
This period marks the sixth consecutive quarter since the beginning of
2008 that office properties registered deterioration in occupied space.
While 20 million square feet of negative absorption represents slightly
less of a decline in occupied stock relative to the first quarter (when
negative net absorption was 25.2 million square feet), continuing weak-
ness in labor markets reveal little basis for any kind of upward revision in
expectations: tenants will tend to continue shedding office space as jobs
are lost. Year-to-date negative absorption sums to 45.2 million square
feet; last quarter, Reis projected negative 67.6 million square feet of
Office Vacancy and Rent Trends
16.5% 4%
16.0% 3%
15.5%
2%
15.0%
Effective Rent Change
1%
Vacancy Rate
14.5%
0%
14.0%
-1%
13.5%
-2%
13.0%
12.5% -3%
12.0% -4%
2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09
Effective Rent Growth Vacancy Rate
negative absorption for all of 2009, and we appear to be on track, with
implications of a slower pace of negative absorption over the latter half
of the year as some stabilization (but not necessarily recovery) takes Upcoming Data Release Dates: Reis’s First Glance analyses of national
root. These figures render 2009 as the worst year for net absorption of and metro trend results in the Apartment, Office, and Retail sectors, as
office space in Reis’s history (not counting space that left the market in well as for construction activity, will be released to Reis SE subscribers
2001 because of the tragic events of 9/11). on July 15. On August 1, all Reis reports will be updated to reflect fourth
quarter trend and forecast data. Reis’s Quarterly Briefing and Capital
Asking rents fell by 1.4% and effective rents fell by 2.7% in the second Markets Briefing will be held in mid-August and late-August, respec-
quarter of 2009. These represent the largest declines in asking and effec- tively. For more information, please contact Reis at 800 366 REIS,
tive rents since the first half of 2002. While conditions are arguably differ- extension 333, or on the Web, at www.reis.com.
ent today relative to the first half of 2002, the historical comparison is
useful in the sense that the first half of 2002 represented an equally Note: Preliminary trends are subject to revision.
challenging leasing environment. The national economy was reeling from Copyright © 2009 Reis Inc