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Truth Behind The Numbers: Vacancy Rates In Commercial Real Estate

By David Marino

In 1954, Darrell Huff’s How to Lie with Statistics quickly became a standard textbook for any introductory statistics class, addressing thorny concepts such as random sampling, correlation versus causation and visual misrepresentation through scale manipulation or truncation. The book makes the case that we are all susceptible to being misled if we are not careful about the way we interpret statistics.

In line with this, the commercial real estate brokerage industry frequently distorts statistics by manipulating the measurement of available space in terms of percentages. The classic “vacancy rate” has historically been the primary measure of the relative health of the commercial real estate market. But in my view, vacancy rates grossly overstate the health of the commercial real estate market, particularly when it’s in decline and companies are looking to give back or sublease space.

Consider a relatable residential real estate analogy. If you are going out with a residential real estate agent to look for a new home, do you only want to see the vacant homes for sale? Of course not, as you want to see all homes for sale that meet your needs, even if someone is living in them, which is generally the case.

What you actually want to see are all the homes that are available for sale that meet your needs, which includes anything bank-owned, being remodeled or under construction. Imagine if the residential real estate industry was measured only on the percentage of homes for sale that were vacant—what scale of terrible purchasing decisions would we all make?

In the commercial real estate industry, spaces or entire buildings can be available for lease or sublease but not vacant for various reasons. For example, when the space is available in the future but is currently occupied by a tenant whose lease has not expired, that space is for lease by the landlord’s broker but not considered vacant.

You can imagine how in these days of remote/hybrid working there are tens of thousands of such examples where tenants are just riding it to the end and have not notified the landlord of the pending vacancy.

Another example is when a space is listed for sublease but otherwise occupied; that space is not considered vacant. It should be noted that when a building is for lease but under construction and not yet complete, that entire building is not calculated into vacancy rates.

You get the idea. If you want an accurate measure of the health of the commercial real estate market, you want to capture all of your options as any well-represented tenant would, and you want to include all available space for lease or sublease. To bring this discrepancy between vacancy and availability rates to life, let’s look at the current office market conditions in some of the biggest U.S. markets as reported by Costar:

  • Boston: Vacancy at 13.3% and availability at 22.3%
  • San Francisco: Vacancy at 27% and availability at 34.1%
  • Denver: Vacancy at 17% and availability at 27.7%
  • Seattle: Vacancy at 15.8% and availability at 24.1%
  • Dallas: Vacancy at 19.7% and availability at 26.8%
  • New York City: Vacancy at 15% and availability at 19.8%
  • Chicago: Vacancy at 18.2% and availability at 25.6%

I believe that the problem for business owners today is that they often don’t have comprehensive information or full transparency into how bad the commercial office markets really are around the U.S.

This is also a problem for lenders and investors who are classically sold on vacancy rates by the brokerage community. When you hear that vacancy rates are 13%, 15% and 17%, your experience will tell you that this is soft, but if you hear that those same availability rates are actually 22%, 24% or 27%, fire alarms may go off in your head. The reality is that, as can be seen in the above examples, availability rates can surpass vacancy rates by almost 63% (using Denver as an example) in the same office markets.

You might wonder why you as a business owner or executive team member running a company should care. The reason is that knowing how soft the commercial real estate market is affects your mindset at the bargaining table, and what results you can expect from the agent that you have engaged to represent you.

Your leverage is a function of the health of the market, and if you are deluded into thinking that the market is tighter than it is, which is better for the landlord, then you may be tempted not to push as hard or demand as much. Your entire leverage is the combination of your choices at the micro level and how strong or weak the market is at the macro level.

Every big brokerage firm reports on market vacancy rates. While this is just their historical measuring stick, their tool is one that inherently favors the landlord and not the tenant.

Unfortunately, this can then drive brokers’ mindsets through the site selection process and at the negotiation table, and it often results in business owners getting mediocre terms on their next lease.


David Marino is senior executive vice president of Hughes Marino, a global corporate real estate advisory firm that specializes in representing tenants and buyers. Contact David at 1-844-662-6635 or david@hughesmarino.com to learn more.

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