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Sluggish job creation mutes U.S. office recovery: report

By Ilaina Jonas

NEW YORK (Reuters) - The U.S. office market mildly improved in the third quarter, as weak job creation continued to plague demand for office space, according to a preliminary report by real estate research firm Reis Inc.

The national vacancy rate for U.S. office buildings stood at 16.9 percent at the third quarter, down 0.1 percentage points from the prior quarter and only 0.30 from a year earlier, according to the report released late Tuesday.

"With the labor market's ongoing struggles to create office-using jobs, demand for space remains muted," the report said. "Stronger job growth is the catalyst that the office market needs for a faster decline in the vacancy rate."

With the tired job growth, demand for office space left the vacancy rate in the third quarter well above the 12.5 percent average U.S. vacancy rate seen in the third quarter 2007. During the recent cycle, the vacancy rate hit a high of 17.6 percent in late 2010 through the first quarter 2011.

The high vacancy rate continued to pressure rents in the third quarter, with the average office rent rising just 0.3 percent from the prior quarter, Reis said.

Both asking rent and effective rent, which factors in perks and months of free rent, rose 2.3 percent compared with a year ago. At the end of the third quarter, the average asking rent stood at $28.88 per square foot and effective rent at $23.32 per square foot.

Seven out of the top 10 metros area ranked by effective rent growth - San Francisco, New York, San Jose, Houston, Austin, Seattle and Denver - are all either tech-oriented or energy-oriented markets.

Washington, D.C., reclaimed from New York the title of the tightest U.S. market, with a vacancy rate of 9.6 percent with New York closely trailing at 9.7 percent.

(Reporting by Ilaina Jonas; Editing by Lisa Shumaker)