Only Half Of Office Space Vacated Since Lehman Has Been Reoccupied

Tyler Durden's picture

One would think that with the economy, allegedly, growing at above-trend rates as Goldman has wagered for the second time in 4 years (the first time Hatzius was dead wrong), with jobs being added at what the BLS would have the market believe is a healthy 200K+ monthly clip, and of course with the S&P500 at record all time highs now on a daily basis, that the US business services sector would be humming along nicely, with little to no slack. One would be wrong: according to the WSJ even with all this alleged economic activity and all post-Lehman job losses having now been recovered, "employers have only reoccupied about 52% of the 142 million square feet that went vacant amid the economic downturn."

The WSJ adds that the office vacancy rate remained unchanged in the second quarter at 16.8%, still near its postrecession peak of 17.6% in 2010 and well above the 12.5% rate in 2007. In other words,

So what is causing this crunch in office space demand? Well, the primary culprit is most certainly asking rent, which keep rising despite the apparent lack of demand for the simple reason that landlords can afford to keep properties empty: with record low cost of capital, it is better from a game theory perspective to ask ever higher prices instead of engaging in a cost-cutting war with competitors for marginal renters:

[R]rents sought by landlords have grown 7.2% since 2010 and 0.7% in the second quarter to an average annual rent of $29.49 a square foot, according to the Reis report, which tracks 79 metropolitan areas. Rents typically rise with modest growth, even if vacancy is relatively high.




Most markets saw some rent growth over the past year, with only three—New Haven, Conn., Buffalo, N.Y., and Milwaukee—registering small declines.

There may be other, more palatable reasons, of which the most important one is cutting on costs, and boosting productivity:

Seyfarth Shaw LLP, a Chicago-based law firm, announced in April it was moving to the Willis Tower, where it would occupy 195,000 square feet, from a nearby building where it occupies 300,000 feet, despite employing a steady number of lawyers. The firm plans to shrink workspaces, cut back space devoted to a law library, and, in a rarity for the legalprofession, it is considering taking some lawyers out of private offices and placing them in cubicles, particularly those who work part-time,said Peter Miller, a managing partner at Seyfarth.


"We have an obligation to our clients to reduce our overhead and be more efficient," Mr. Miller said, adding it will save "multiple millions per year."

And then there is the simplest possible explanation, which usually is the correct one: businesses are not operating at the same level now as they were at the last bubble peak level for one simple reason: the economy is in far worse shape than the various seasonal adjustments and "weather scapegoaters" would want people to believe.

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hedgeless_horseman's picture



Build it and they Krugman will cum.



The law of supply and demand is dead.  The Fed repealed it.

0b1knob's picture

We need some sort of popular movement to solve this problem.  Call it "Occupy Wall Street".

Oh wait...

TeethVillage88s's picture

Oct 2005 was the peak of Existing Home Sales and New Homes Sales according to the FRED Charts, so I have to conclude by this chart for real estate loans that there was Refinancing & Equity Loans going on in a big way. Existing Home Sales© (2014-04: 4,650,000 Number of Units) New One Family Houses Sold: United States (2014-04: 433 Thousands)

buzzsaw99's picture

that's okay the fed bought it all for top dollar

NoDebt's picture

With interest rates at zero, this is probably another example of why over-stocking inventory is effectively costless.  Works for cars, works for office space.  Probably works for a lot of things.

NotApplicable's picture

The only functional new businesses I see these days are home healthcare or very high-end retail ($200 shoes, for instance).

Everything else is merely the latest form of debt-leveraged, captial consumption.

LawsofPhysics's picture

Makes perfect sense as servers in basements are now doing all the "work".

hedge accordingly.

Dr. Engali's picture

One word...... Internet. Office space is quickly becoming an outdated concept.

youngman's picture

Who needs an office when all you do is Tweet now

The Alarmist's picture

Law firm moving people to cube farms, eh?  Why not take them out and chain them up in a quarry somewhere?

NotApplicable's picture

Can I pay to throw rocks at them too?

ExpendableOne's picture

Law firms are putting back office "worker bees" out to pasture, as in moving them to places like Tennesee and Alabama.  Same with computer rooms.  Why pay Manhattan prices for a computer center?  These days it can go anywhere.  Or better yet, lease it all from Amazon...

ToNYC's picture

52% is a lot. It's a Dutch Auction all the way down, until the last of the vice-chairman uniforms are gone, then urban renewal for the global inversion of the oligarchs into the primo properties of the perpetraitors.

max2205's picture

Same as foreclosure and not available to rent...iit's not there

I Am Not a Copper Top's picture

Robots don't need that much space

TeethVillage88s's picture

Always was predicted that in Off-shoring

Financial Jobs would go overseas and stay

Along with Information Workers, Customer service, Accounting & Bookkeeping, Insurance, Manufacturing, Engineering

I haven't seen FRED Charts to indicate Financial Managers have recovered jobs, but they may have found jobs in Business Management or Management Services.

yogibear's picture

We don't need jobs, we have the Federal Reserve that can print all the money we need. 

Just continue to stay hone and trade stocks.


If the American taxpayer owns Fannie & Freddie it would seem

that they own the debt and the payments on the debt IMHO.

Fannie & Freddie backstopped this debt and that means it can't

wind up in bankruptcy. If the office space in New York is sitting empty Fannie & Freddie still get paid. If it crashes in terms of a mass sell-off and the prices go south for holders of the loans

resulting in owners going underwater and the bond markets blowing up, the American Government must dance on the head of a pin in order to stay afloat. If Bonds tank the Government of the United States of America tanks. Free money and QE infinity is the only brilliant plan the American exceptionalists

can come up with right now. Round and round she goes, where she stops, nobody knows. Like a Carnival barker the Fed is looking for a mark at that mark is you, SUCKERS. Henry Paulson and Ben Bernanke had to pin the tail on the donkey and the donkey is the American people. If I was American I

would write to the President and ask him what his government intends to do about this predicament.

goldhedge's picture

Meh.  Ghost Offices....not as bad as Ghost cities

NotApplicable's picture

Only as measured in density. Otherwise, there really is no difference. If only FDR were still around, he could have all that shit dozed down so that we might recover.

The Most Interesting Frog in the World's picture

LOL, I have been wondering WTF is going on!?

I am seeing a) More commercial, industrial and retail vacancies than I have seen in some time b) More new space being brought on line.

Demand, at very best is shifting from one building to another, one shopping center to another, one industrial park to another.  

FuzzyDunlop21's picture

48% upside bullish!