After seeing 2.5 million square feet (msf) of positive direct absorption in 2012, the market started 2013 strong with 613,000 sf of absorption in the first quarter. Direct vacancy declined further to 12.3%. The Northwest submarket continued to lead the way, with nearly 200,000 sf of positive direct absorption in the first quarter of 2013 and 11.3% direct vacancy, still the lowest of all four submarkets. Not far behind, the Northeast saw 164,000 sf of positive direct absorption, and direct vacancy continued to decrease from 13.0% in 2012 to 12.6% in the first quarter of 2013. In the Southwest, direct vacancy dropped from 13.5% in 2012 to 12.9% in the first quarter of 2013, and the submarket recorded 154,000 sf of positive direct absorption. The Southeast submarket experienced 96,000 sf of positive direct absorption, and direct vacancy dropped to12.8%.
Asking rates started to increase in specific product types and submarkets as vacancy rates began to decline. The average rate across all submarkets and property types was $4.39 per square foot (psf) NNN in the first quarter of 2013.
While activity remained moderate, landlords of well occupied portfolios expect to achieve better net effective rates in the second half of the year. Tenants have realized a shift in the market, and in some cases, are approaching landlords earlier to secure renewals because market options are limited. Slow and steady positive absorption and lower vacancy rates are expected in the second quarter of 2013.