Office rents rising sharply

August 22, 1996: 2:26 p.m. ET

Survey says urban commercial rents soared 10 pct. in first half of 1996

NEW YORK (CNNfn) -- A recent study conducted by CB Commercial Real Estate Group, Inc. indicates that commercial office space rents have skyrocketed more than ten percent in the first half of this year, The Wall Street Journal reported Thursday.
     This jump, which is the biggest six-month increase in at least 16 years, is attributed to a scarcity of new construction, and carries the average annual rent nationwide to $19.57 per square foot as of June, from $18.11 per square foot six months earlier.
     Ray Torto, an economist at the L.A.-based Tort Wheaton Research unit of CB Commercial told the newspaper that rents may continue climbing through 1997 as demand continues to grow.
     He estimates that American businesses will occupy an additional 50 million square feet of office space this year, yet only 15 million square feet of new space will be created.
     As for next year, Torto expects new construction to increase, but anticipates that demand for space will still outpace construction.
     Rent increases were most largest in the West and Midwest, and less obvious in the Northeast. Minneapolis and San Diego rents increased by 26 percent and nearly 22 percent respectively during the first half of 1996, while rents in New York office market climbed just 4.5 percent.
     Interestingly, most of the big price jumps do not fall within downtown city areas; rather, the increases are more significantly affecting outlying areas.
     Industry executives suggest that rents are now approaching the point where speculative buildings may make financial sense in many markets. However, banks are much less willing to lend money after their experience in the real-estate-market crash following the 1980s building boom, so another construction surge is unlikely.
     The office market began its recovery three years ago. Vacancies nationwide peaked in 1992 at 19 percent; however, that level has dropped to only 13 percent since that time, and in the most recent six month period, CB Commercial said vacancies have toppled a full percentage point.