For the first time in three years, U.S. office tenants in 2004 saw their rent bills rise, according to a report released Wednesday by Studley.
The increase was due mostly to higher real estate taxes, electricity costs and operating expenses.
The U.S. economy was stronger, too, and that stimulated demand in some big U.S. cities, the report said.
National rents rose by 2.8 percent to $42.66 per square foot in 2004 from 2003, according to the Studley Effective Rent Index.
But the index is still 17 percent below the all-time high of $51.18 per square foot, reached in 2000.
The index, which represents the base rent that office tenants pay plus all other costs, was prepared by Studley commercial real estate services, a New York-based company that specializes in tenant representation. The report covers rent from Class A, high-quality buildings in major U.S. cities, including New York, Atlanta, Washington, D.C., Houston and San Francisco.
"What we're seeing is a slow, but steady improvement of rental rates in major commercial business districts across the country," said Mitchell Steir, Studley's chairman and chief executive officer, in a statement included with a summary of the office rent report.
For 2004, Midtown New York posted the highest total office rent at $66.27 per square foot, while Washington, D.C., was a distant second, at $53.
Houston had the the lowest total office rent at $21 per square foot, followed by Atlanta at $24.04 per square foot.
Although rent rose last year from 2003, it was still drastically lower in 2004 than its peak in 2000 for every market surveyed — except Washington, D.C., and West Los Angeles, which were each up 15.2 percent.
Total office rent in Miami last year matched the 2000 figure.
The greatest difference in rent for the four-year period was seen in San Francisco, down 55 percent; Boston, down 23 percent, and Houston, also down 23 percent.
The National Tenant Effective Rent Index, which factors in "free rent" tenants and other incentives landlords grant, rose slightly to $34.31 — up 3.4 percent in 2004 from 2003.
The Northeast/Mid-Atlantic markets posted the highest tenant effective rent, with Midtown New York at $55.22, Washington, D.C., at $44.86 and Boston at $38.95.
Those with the lowest tenant effective rents were Houston at $15.82; Tampa, at $16.67, and Atlanta, at $19.60.
The largest declines in tenant effective rent were in Philadelphia, down 14.6 percent, and Atlanta, down 5.8 percent.
San Francisco's tenant effective rent fell by the widest margin from its 2000 peak, down 62 percent. Houston's was second, off 38 percent from its peak in 2000, and Downtown New York was a close third, down 32 percent from its peak the same year.
Downtown New York's tenant effective rent was off 3.1 percent in 2004 from 2003, while Houston's was down 3 percent, and Chicago's was down 2.2 percent, the Studley report said.
The other metropolitan office rental markets registered increases for the year.
On the other side, the National Landlord Effective Rent Index — which measures the amount of rent landlords receive — posted a slight increase in 2004 of 2 percent to $15.42 per square foot.
"Although a few markets posted significant gains, many markets continued to post lower landlord effective rent for the year," the Studley report said.
Miami landlords saw the greatest increase, up 24.8 percent. Dallas was second, up 9.7 percent, and and Midtown New York was third, up 9.6 percent.
The highest landlord effective rent was recorded in Midtown New York, at $26.23 per square foot; Washington D.C., was next, at $25.27, and Boston followed, at $20.30. They were "the only markets to exceed $20 per square foot in 2004," the report said.
On the downside, Philadelphia landlords experienced the deepest decrease, with the Landlord Effective Rent Index down 31.2 percent, while Chicago was second, down 17.3 percent, and Houston was third, down 14 percent.
Houston, Chicago and Tampa each posted rates of below $7.00 per square foot.
The greatest gap between peak landlord effective rent in 2000 and 2004 rents was in San Francisco, down 78 percent, followed by Houston, down 70 percent, and and Downtown New York, down 66 percent.
