U.S. office vacancy rate hits three-year high.

Cushman & Wakefield released first quarter 2009 statistics for the U.S. office property market that show an increase in the central business district (CBD) vacancy rate to 12.5% from 11.2% at the end of 2008.

The vacancy rate is at its highest level since the first quarter of 2006, when

it was 12.6%, but is still below its decade high of 15.5% in the second and third quarters of 2003. The vacancy rise in the first quarter coincided with a 39.3% decline in overall office leasing activity in CBDs for the period, which totaled 10.6 million square feet, compared to 17.5 million square feet in the first quarter of 2008. Two additional factors that contributed to the rise in vacancy were new construction completions and a significant increase in available sublease space.

New CBD construction completions in the first quarter totaled 3.3 million square feet, with approximately one-third of that space still available for lease as of the end of the first quarter. The amount of available sublease space rose 24.5% quarter over quarter, increasing the sublease vacancy rate to 2.1% at the end of March.

The slowdown in leasing, combined with the increase in available space, contributed to a 2.2% decline in average asking rents. At the end of the first quarter, the average asking rent for U.S. CBDs was $39.50 psf, compared to $40.37 at the end of last year. Despite the decline, the average asking rent is still above the average recorded at the end of the first quarter of 2008, of $37.69 psf.

The direct vacancy rate--or space available directly from landlords--measured 10.4% at the end of the first quarter, up from 9.5% at the end of 2008 to its highest point since the second quarter of 2006. Despite the quarterly rise in overall vacancy in nearly all 31 CBDs tracked by Cushman & Wakefield, average asking rental rates continued to climb in 14 cities. Asking rental-rate changes ranged from the highest increase of $1.20 psf in Baltimore, to the largest decline of $6.63 psf in San Francisco.

Only one market, Dallas, experienced a vacancy rate decline in the first quarter, to 27.2% from 27.6% at the end of 2008. Atlanta and Orlando held steady at 17.4% and 21.1%, respectively, while four other markets Philadelphia, Minneapolis, Palm Beach and Silicon Valley--experienced only slight increases of 0.2% or less.

The top five cities with the lowest overall vacancy rates in the nation at the end of the first quarter were New Haven, Conn., at 9.2%; Washington, D.C., at 9.4%; New York at 9.6%; Portland, Ore. and Philadelphia each at 10.2%. Considering Downtown Manhattan and Midtown South as individual markets within New York, the two submarkets each recorded the lowest vacancy rate in the U.S. at the end of Q1, of 8.1%.