The direct weighted average rental rate is $18.88 per sf, down from $19.01 per sf in the first quarter and $19.24 per sf in second quarter 2003. Vacancies are at 13.9%, an improvement from 15.6% at the end of last year.
"The market was battered for several quarters with sagging occupancies, steady depreciation in rental rates and tenants unwilling to commit to long-term deals in the midst of an economic downturn," says Advantis research director Lisa M. DeVore. "Landlords, forced to drop their rates in an increasingly competitive environment, are now under pressure to boost their rates in addition to their occupancies."
DeVore says "the rate of decline in rental rates is not expected to continue, as landlords cannot push their rates much lower without adversely affecting their interests over the long term."
For example, in the 2.6-million-sf University Research submarket in east Orange County, Central Florida Research Park owners are "remaining firm on their rates, although free rent of three months on a seven-year deal is still not unheard of," DeVore says. "What has changed is the amount of tenant allowances allowed on deals. With an increase in construction costs, some deals are being negotiated turn-key, although with strict guidelines, in lieu of an actual tenant improvement allowance."
Class A rates average $20.81 per sf; class B, $18.44 per sf; and class C, $16.16 per sf. Last year's rents average $21.02 per sf for class A; $17.92 for class B; and $16.21 for class C. In 2000, class A was averaging $21.36 per sf; class B, $17.55; and class C, $16.92.
The net absorption column is improving, showing a second-quarter positive total of 294,544 sf leased out, up from a negative absorption of 163,275 sf at year end 2003.
"Our mid-year statistics support" a stabilizing office market "and clearly show that both the vacancy rate and the rate of net absorption are beginning to reach a point of stabilization," DeVore says. "The only leasing fundamental that has not shown healthy growth is the direct weighted average rental rate."
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