Twenty-seven office markets tracked by Bethesda, Maryland- based CoStar had positive net absorption, meaning that more space was leased than vacated, while new vacancies outstripped new leases in 16 markets. A total of 7 million more square feet (650,000 square meters) of office space was leased than abandoned throughout all 43 markets, CoStar said today.

"It's positive," Jay Spivey, CoStar's director of analytics, said in an interview. "It's not nearly what it was a year ago or two years ago, when the market was absorbing 25 or 30 million square feet a quarter, but it's not what you'd expect seeing the news. You'd expect to see negative absorption."

Office occupancies were helped in the second quarter by a 270,810-square-foot lease in Boston by International Business Machines Corp., and a 493,196-square-foot lease in Washington by U.S. Immigration and Customs Enforcement, CoStar said. Almost 90 percent of the second quarter's office absorption occurred in just five markets - Chicago, Washington, Boston, Dallas and Austin, Texas - CoStar said.

"Within these markets, companies in the technology, energy and health-care industries appeared to be the most active in terms of leasing more space," Spivey said. In Austin, for example, the second quarter's largest lease was 65,437 square feet taken by SolarWinds Inc., a maker of network-management software for the U.S. State Department that is based in the city.

Vacancies rise

The total U.S. office vacancy rate was up 0.3 percent in the second quarter. Six of the 10 biggest office markets had vacancy- rate declines, CoStar said. The company maintains a database of floor plans, photographs and other information for commercial buildings across the U.S. and provides information to real-estate companies and related industries.

"Vacancies are relatively low compared to what they've been in the past," Spivey said. "They're not that bad from a historical perspective."

In the second quarter, the average office rent rose in 35 of the markets CoStar tracks. San Francisco had the biggest increase from a year earlier at 22.9 percent, followed by San Jose, California, and the South Bay at 20.8 percent, New York City at 15 percent, Houston at 13 percent, and Miami and Dade County at 12 percent.

Cincinnati's rents dropped 7.2 percent, Boston's fell 3.4 percent, and Orange County, California's declined 2.8 percent, CoStar said. Orange County has been hurt by the collapse of the subprime-mortgage industry, which included such Orange County companies as Ameriquest Mortgage Co. and New Century Financial Corp.

Office rents across the U.S. rose 5 percent on average from a year earlier, CoStar said. The increase might be driven partly by rising energy costs, which are included in CoStar's rent figures, the company said.

Source: Bloomberg