Q2 Stats Highlight Negative Absorption

CB Richard Ellis' Q2 2009 results show absorption on the negative side, at 217,818 square feet, with the direct vacancy rate slightly above 20%. Meanwhile, the commercial real estate pipeline is slowing up, with the market on tap to deliver close to 3 million square feet during the rest of the year.

Second quarter figures from Cushman & Wakefield show negative absorption for the area at 617,083 square feet and direct vacancy close to 21.5%. The differences come from tracking data: while Cushman & Wakefield tracks by signing date, CBRE reports based on move-in date.

But both reports point out something brokers already know: job losses resulting from a sick economy continue to impact office space, as to businesses that continue to contract. "What we're seeing is something that's typical in every recession-oriented market," comments Mark Fewin, CB Richard Ellis senior managing director. "On the user side, if clients are bullish and confident about their business, they're taking advantage of the market."

Meanwhile, on the landlord side, things aren't quite so free and easy. "Owners are doing anything they can to hang onto the tenants they have," Fewin explains.

Matt Heidelbaugh, senior director with Cushman & Wakefield of Texas Inc. says owners in this market need to focus on tenant retention, and work with tenants who might be struggling. In addition, "landlords that are well-capitalized and have good credit will be able to play ball with tenants," Heidelbaugh remarks. "Without that capitalization, landlords won't be able to keep up the buildings or fund TIs, and tenants will move out."

Fewin remarks that nothing about the numbers surprised him, except for the close 20% jump in the sublet space available. "That was alarming," he acknowledges. "That really jumped out at me."

On the other hand, Heidelbaugh didn't like the absorption numbers. "In Q2 2008, absorption was positive at 311,000 square feet," he remarks. "But in 2009, its down, at a negative 740,000 square feet. We gave back roughly three quarters of a million square feet."

Though both brokers shook their heads over different things presented by various reports, they agree it could be a lot worse. "I think the silver lining is we're better off than a lot of other places in the country," Heidelbaugh remarks.

"The good news is, thank goodness we're in North Texas," Fewin adds. "The recession here isn't as deep as we've seen it in the past." However, he continues, the recovery will likely be slower than from recessions past. "Caution will be the trend," Fewin remarks.

In fact, the brokers also agree that recovery isn't just around the corner, and the rest of the year will continue to see softening in the office sector. What 2010 will bring, they comment, is anyone's guess.

"I continue to say it will be at least until next year at this time until we start to see a real improvement," Heidelbaugh says. Though there has been some uptick in leasing activity during the past month, Heidelbaugh doesn't put a whole lot of stock into it. "There are too many buildings out there that will go back to lenders, too much space on the market and too many people being laid off," he explains. "There are still some tough fundamentals out there."