With one million sf of sublease product available, property owners are offering concessions and competing fiercely for creditworthy tenants but aren't typing up leases for lengthy terms at current bargain rates.
"These market conditions will continue to give tenants an advantage in negotiating lease terms throughout 2002," Jeffrey S. Sweeney, G&E's executive vice president/managing director, tells GlobeSt.com.
The economy is expected to balance out in the first half of this year and then resume a slow growth for the balance of the year.
"Potential tenants who are alert to the subtle changes in the market will take advantage of the availability and the lower rents, helping to create even more demand," Sweeney says.
He sees "a gradual increase" in demand during the year for office space. "As demand increases and vacancies drop, a return to a more normal development cycle is expected to resume in 2003,"
Class A rents in the central business district are $20.87 per sf and $18.36 per sf in the suburbs for an average $21.19 per-sf rent in both markets. Class B rents in the CBD are $21.37 per sf and $16.97 in the suburbs forn an average $17.10 per sf.
The 6.15 million sf in class A Downtown show a 13.4% vacancy level versus a 15.3% vacancy factor in the 29.1 million sf in the suburbs. In 2000, vacancies in the CBD stood at 14% and 14.5% in the suburbs. Vacancies in 1999 were 12% Downtown and 13.5% in the suburbs.
Year-end total net absorption numbers show 20,000 sf in the CBD and 110,000 sf in the suburbs.
No new office construction is under way Downtown. A total 759,000 sf of new product is in the pipeline in the suburbs.
For developers, the short-term opportunities are in build-to-suit projects. The most likely tenants are investment grade companies or government enterprises. The Interstate 75 corridor continues to offer the strongest development growth potential, Sweeney says.
"Developers will also concentrate on mixed-use facilities, combining office buildings with upscale restaurants, retail stores, apartments or condominiums, all within the same complex, providing a community environment," the Grubb & Ellis executive projects.
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