Free Rent Gone in Tight Service Space Market

"The record-breaking absorption is the big story" in the second-quarter performance of the 88-building market located south of the 408 Expressway, says Lyle N. Nelsen, Rebman's corporate and industrial specialist. He has compiled the quarterly statistics since 1986. Nelsen forecasts a total 700,000 sf will be leased for the entire year. First half absorption totaled 399,174 sf.

"It's a landlord's market with landlords afforded the luxury of being choosy in selecting credit-worthy tenants and no more free rent," Nelsen says. "Modest improvements will be included and expansion tenants will take priority." For brokers representing space-hunting clients, the current market is "a challenge, but what else is new in this business?" Nelsen says.

Nelsen predicts "the no-vacancy signs will be going up" shortly. He says 55 of the 88 buildings surveyed by Rebman are full, "with very little space available in the remaining buildings. "We are seeing the results of this tight market (already) with higher (quoted) rents," the broker notes. "One center is reporting an increase of $2 per sf."

Nelsen tells GlobeSt.com the service center rate range is $6.50 per sf to $14 per sf triple net, depending on the amount of office space involved. Flex space ranges from $5.75 to $10 per sf triple net, also depending on the amount of office space involved. "Service centers tend to go all office with full air conditioning, as time goes on," Nelsen says. "A good example is the Quorum Center, down there on Vineland Road near 33rd Street. It's practically all office now and they're charging $14 per sf."

Nelsen says "the problem is that in 2007, we need to build more flex space…but there is a scarcity of entitled industrial land, and there are only one or two developers who have excess land for development in 2007." He says that leaves the service center and flex markets with "a very tight future." Nelsen cites the approximately 920,470 sf currently available, including 300,000 sf under construction, "and the good prospect of leasing or selling another 300,000 sf by year end, leaving only 600,000 sf available at the end of 2006." The 600,000 sf includes about 242,000 sf of condo space.

Nelsen says "an interesting aspect of this flex space and service center market is the emergence of condominium space for sale." He says the market now has a total 954,462 sf of condo space in 14 industrial flex buildings with 102,914 sf available. That leaves an average overall condo space vacancy of only 10.8%. There is a total 100,707 sf of new condo space under construction in three new buildings to be completed this year.