The firm’s conclusion was that there was an enormous “hidden supply” of available space which had not been listed on the market. Some of the key reasons for this were:
Established tenants were still hopeful about being able to rehire laid off staff.
Major tenants such as those in the financial services industry were fighting bigger fires and were not focusing on a few million dollars in underutilized space.
Smaller and mid-sized tenants were worried that putting their unused space up for sublease might send an impression that they were not financially stable.
Lenders were not forcing the issue of recognizing unoccupied space as long as owners were still collecting rents and making loan payments.
Their conclusion was that a 1,100 basis point spread existed between the official vacancy rate and the actual percentage of available space. In other words, the percentage of total available space was not 12.5% but 23.5% of all office space. An incredible and frightening number!
CoStar found that in the 15 largest office markets, leasing activity had plunged by an average of 46% from a year earlier. With fewer deals being done, the average time between a space being listed on the market and a signed lease had soared from 270 days at the start of 2006 to 415 days in the first quarter of 2009.
Furthermore, office building prices had collapsed in early 2009. Class A space was down 21% from the previous quarter and by an average of 51% from the peak in early 2008. Class B space had fared even worse - down 40% in the first quarter and 55% from the third quarter 2008 peak.