Office vacancies hit 16-year highs

NEW YORK (CNNMoney.com) -- Office vacancy rates are now at their highest level in 16 years, according to a report published Monday, as elevated unemployment levels across the country continue to temper the demand for space.

Roughly 700 million square feet, or 17.2%, of the more than 4 billion of available office space nationwide was unoccupied as of the end of March, according to the real estate research firm Reis. The last time office vacancies were this high was in 1994.

The number of empty offices has been on the rise since the start of 2008, as soaring unemployment and a wave of business failures have crushed commercial real estate.

The trend however, has not just been isolated to those parts of the country that have been particularly hard hit by the recession.

In fact, nearly three-quarters of the country's major metropolitan areas experienced an increase in office vacancies in the first quarter of 2010.

The city of Detroit has the highest office vacancy rate. Mired by troubles within the automotive industry, just over a quarter of all of the office space in the metropolitan region now sits empty, according to Reis.

Washington, D.C. boasts the lowest vacancy rate, with just 10.4% of all office space vacant as of the end of March.

Office rents, another widely-watched indicator of the health of the real estate market, continued to decline, falling 0.8% in the quarter.

California's Orange County and New York City saw the biggest decline in rents so far this year, falling 2.3% and 2.1% respectively.

One positive development: The data indicates that businesses are paying closer in rent to what landlords are asking for, suggesting that landlords are not making as many concessions as they used to.

Still, analysts at Reis noted that rents and the level of office vacancies are unlikely to improve until sometime next year, given that commercial real estate typically lags what is happening in the broader economy.

"We expect less of a bloodbath in fundamentals in 2010 versus 2009, but rents will still decline and vacancies will still continue to rise," Victor Calanog, Reis' director of research said in a statement.