BIG PICTURE: Third-Quarter Office Leasing a Tossup

"Our leasing brokers say the pipeline is not that strong and they don't expect much more this year," Ted Buenger, office broker, CB Richard Ellis Inc., Chicago, tells GlobeSt.com Midwest Bureau Chief Mark Ruda.

Sublease space is fueling the vacancies. Chicago's East-West corridor is at 17.4% vacancy; O'Hare submarket, 15.1%; north suburbs, 15%; northwest suburbs, 13.5%; Downtown, 13.9%.

In Houston's 77 million-sf market, 500,000 sf was absorbed in the first quarter with the same volume expected in the second, Randolph Strait, vice president/leasing, Crescent Real Estate Equities, tells Southwest Bureau Chief Connie Gore. Energy industry tenants are propping up Houston's office market, Strait says.

"I would expect a reasonably good third quarter," he tells Gore. "It's not going to be a spectacular year, but it will be a good solid year."

Dallas and Austin property owners are offering concessions such as furniture, free rent and telecommunications equipment but even those bandages won't stop the bleeding, Calvin Hull, senior director, Cushman & Wakefield of Texas Inc., tells Gore.

"May and June have been pretty ugly again," Hull says. July is expected to be the same. Dallas is at 18% vacancy with 6.5 million sf of empty product. Sublease space accounts for 5.5 million sf of that total. At yearend 2000, the Dallas sublease count was 2.5 million sf.

In Central Florida, metro Orlando's 29 million-sf market has joined the company of Miami, Fort Lauderdale and West Palm Beach with vacancies topping the 12% mark. But Orlando brokers remain bullish.

"The third quarter should be better than the first and second quarters, and the fourth quarter should be stronger than the first three quarters," Jason Kaiser, senior office broker, Trammell Crow Co., tells GlobeSt.com.

Christopher T. Sproles, first vice president, CB Richard Ellis Inc., is equally optimistic. "In general, even though things seem a little slow and there is a lot of sublease space on the market, we are still in a relatively healthy position."

James Densmore, director, commercial real estate division, Signature GMAC Real Estate, works the growing 250,000-sf Orlando West/Winter Garden/Ocoee submarket. He sees no slowdown in leasing activity and looks for a strong third quarter.

"Occupancy is around 95%, so I don't expect to see much in the way of concessions because there is no need for them," he tells GlobeSt.com. "We feel the West Orange market, around Health Central hospital especially, will remain one of Central Florida's strongest commercial areas through the third quarter."

None of the brokers GlobeSt.com interviewed feel the latest round of federal interest rate cuts will affect third-quarter leasing activity.