Office Market Moving in Right Direction

But there will be continued pressure on class B and C rates, as tenants are taking advantage of low class A space, moving out of older and less well-located properties.He also predicts that leasing activity and deals will continue to improve and there will be positive absorption. Also, sublease space will roll to direct lease space, Gautreau says.

Meanwhile, the overall office vacancy rate is 20.8%, he says. One group that situation has been helping is tenants, who are being more decisive and are taking advantage of low rents, he says.

The direct class A asking price is $19.45 per sf, but realistically, he tells GlobeSt.com, tenants on average, can probably cut a deal at 10% below that. The direct asking rental rate for all classes of space is $16.85, but tenants can also probably get a 10% discount to the asking rate, especially if they are good credit tenants.

The market is projected to absorb 236,911 sf, a great improvement from the negative absorption plaguing the market for the past two years. Last year, the market showed a negative absorption of 498,370 sf. "That's a swing of about three quarters of a million sf in the right direction," Gautreau tells GlobeSt.com.

In 2001, the market had negative absorption of 119,230 sf. In 2000, when the market was red-hot, it showed positive absorption of 5.7 million sf.He projects this year gross leasing activity will top six million sf, compared with about 4.5 million sf in 2002.