Leonard Sees Office Rebound by Year End

"Local employers are beginning to increase payrolls, which will have a positive impact on the local office market," Leonard says. "Many office owners are likely to begin holding the line on concessions, which will help keep effective rents from falling this year."

In a mid-year market assessment, Leonard predicts Midtown vacancies will drop to under 19% from 19.8% in the first half. Colliers Cauble Co. put the vacancy mark at 21.4%. Richard Bowers & Co. pegs first-half vacancies at 18.35%.

Leonard also expects effective rents to remain steady for the rest of the year at an average $16.46 per sf while asking rents will be flat at $19.94 per sf. Colliers Cauble has average asking class A office rents at $18.74 per sf. Richard Bowers & Co. puts the average quoted rental rate for the second quarter at $20.24 per sf, down from $20.60 per sf in second quarter 2003.

On the investment sales side, Leonard looks for sales activity to remain strong through year end. "Investors are pursuing upside opportunities to take advantage of stronger market conditions in late 2004 and 2005," he says. "Many investors are focusing on smaller properties of less than 15,000 sf, which will push the median price per sf above $118 this." The median price has been hovering in the $104-per-sf range this year.

Leonard's continued optimism for the office market is based largely on reports from local employers who have said publicly they plan to expand payrolls by 2% in 2004 or 43,200 workers, "an improvement when compared to 2003's job losses," the M&M executive says.

He says office-using employment is projected to increase for the first time in four years, registering an increase of 2.1% by year end, or 12,500 positions. "Office employment growth will gather momentum in 2005 as the metro area's Fortune 500 companies and regional and international operations benefit from the rise in customer demand for their products and services," Leonard adds.

The construction scene, however, is not as rosy. Developers are forecast to deliver 570,000 sf in 2004, down from 1.2 million sf in 2003. "The lull in [construction] activity is expected to be short-lived, however," Leonard says. "The majority of speculative construction will take place in the fast-growing northern suburbs with a focus on low-rise and medical office properties."