New York City continues to make economic progress. The city’s workforce grew by 78,900 jobs over the 12 months ending April 2013. As a consequence, the unemployment rate declined to 7.7 percent in April compared to 8.8 percent a year ago. Reflecting continued employment growth, the office market was quite active across Manhattan, as a wide range of tenants signed leases during the first quarter. Tenant volume exceeded the previous quarter activity by 38 percent and was more than twice that of a year ago. Availability rates, however, remained relatively unchanged in Midtown North and Downtown and increased in Midtown South. Overall asking rents declined in Midtown North, but rose in Midtown South and Downtown. A number of tenants are viewing their space needs differently than in the past. Collaborative working spaces and “green” are de rigueur; oversized workspaces are not. The recent slow absorption is the result of a combination of tenants frequently relocating or renewing at the same or reduced size and the return of numerous large blocks of space to the market. Manhattan is blessed with the ability to continually reinvent itself. A wide range of exciting changes are in various stages of development that will alter …
Office
Houston has long been characterized by its energy presence, earning titles such as “The Energy Capital of the World” and the “Petro Metro.” The American drilling renaissance has brought about significant changes on a national and international scale, and the boom is projected to be sustainable for decades. As a result, energy companies are shifting operations back to the U.S. Houston is at the heart of the American oil industry, and as companies grow and expand their footprint in the U.S., the Houston office market is positioned to experience significant growth. The economic impact of the shale boom has been felt throughout Texas. The Eagle Ford Shale, one of the most significant oil and gas plays in the country, spans 14 producing counties and had an economic impact of $46 billion in 2012. Surrounding cities, such as San Antonio and Corpus Christi, are experiencing growth in all product types to accommodate the population and employment gains in the region. Midland has become one of the most expensive places in Texas thanks to the Permian Basin, while the Dallas/Fort Worth metro area, with the Barnett Shale in its backyard, continuously tops various economic health indices. But Houston, home to 87,418 headquarters, …
The Cincinnati office market recorded positive net absorption of 74,378 square feet during the first quarter of 2013 while the overall vacancy rate dipped slightly to about 23.2 percent. The forecast from Cassidy Turley is for Class A submarkets to become tighter as medical and service industries continue to drive absorption. However, the increasing success of the Class A sector has come at the expense of Class B space. First-quarter Class A direct vacancy in the metro Cincinnati office market stood at approximately 20 percent, while Class B direct vacancy was about 28 percent. That’s a stark contrast from 2004 and 2005, when Cincinnati’s office vacancy rate was 10 percent for Class A space and 17 to 18 percent for Class B space. “If you look back eight to nine years, that’s where [the vacancy rates] stayed during good times,” says Scott Abernethy, senior vice president and principal in Cassidy Turley’s Cincinnati office. When the market took a hit during the 2008 to 2010 period, large vacancies popped up, forcing landlords of Class A buildings to lower rental rates. That in turn created deal incentives for Class B tenants to move to newer facilities. “Class B tenants can move over …
In Providence, R.I., the the Class A office market has stabilized. GTECH Center has been successful in leasing up just about all of its available space to four or five tenants. Consequently, The GTECH Building sold for more than $50 million prior to the end of 2012. In addition, the new Blue Cross tower was successful in leasing 10,000 square feet of available space with plenty of continued interest for additional floors from prospects. Also, Bank of America’s move from its former headquarters at 111 Westminster into space located in 100 Westminster and One Financial Plaza has further helped push vacancy rates down for Class A office space. The current vacancy rate for this product is less than 9 percent in the Capital City. Consequently, this activity has pushed rental rates for Class A space back over the $30 per square foot mark on new deals. High Rock Development, which owns 111 Westminster (the former Bank of America building), is currently lobbying the state for tax credits to redevelop the building into apartments. It will be interesting to see, since the 38 Studios collapse, how far the state and city are willing to get involved — or if the building …
From farmland in the early 1970s to a major economic center in Georgia and the Southeast today, Central Perimeter has evolved into the dominant office submarket in metro Atlanta and an employment center larger than the downtowns of Nashville, Charlotte or Jacksonville. A corporate hub, Central Perimeter contains the headquarters of nearly 50 companies, including four that are Fortune 500s. During 2012, Central Perimeter also was the most active submarket in metro Atlanta, accounting for more than half of the region’s total office space absorption at 1.7 million square feet. The largest lease transaction in metro Atlanta in 2012 was in Perimeter. State Farm opened a new customer service center in nearly 500,000 square feet of space in two buildings in Dunwoody, which created 500 jobs. Metro Atlanta’s largest office sale in 2012 was the $300 million purchase of the 2.1 million-square-foot Concourse Corporate Center that includes the landmark King and Queen buildings. Additionally, Cox Enterprises added two buildings totaling 600,000 square feet to its Perimeter campus, delivering the largest office construction project last year. Central Perimeter is maintaining this strong activity in 2013, with State Farm leasing nearly 200,000 square feet of additional office space, adding 800 jobs. Also, …
A multi-speed economic and real estate recovery is occurring in Northern California’s office markets. San Francisco and Silicon Valley have been in recovery mode for more than two years with strong growth in both rents and occupancies. The technology industry is the driving force and has produced about 50,000 jobs in the Bay Area since 2010, according to CBRE’s analysis of data provided by the state of California. This has generated high volumes of office space demand that is concentrated mostly in San Francisco and Silicon Valley. These two markets have seen overall average rents grow by more the 60 percent in the most popular submarkets like South of Market (SOMA) in San Francisco, where prices have reached $53.91 per square foot, and Sunnyvale/Mountain View in Silicon Valley, where they hover at $54.36 per square foot. As conditions tightened, activity fanned out to neighboring submarkets, causing new development in popular submarkets to ramp up. The southern portions of the San Francisco Peninsula, northern portions of San Jose and southern portions of the East Bay markets adjacent to Silicon Valley have all benefited from overflow demand. San Francisco has not yet produced significant overflow demand, although further rental rate increases are …
While most office markets are bifurcated between Class A and the rest, the Triangle market has a particularly pronounced disparity that is driving market trends. In the first quarter of 2013, Class A vacancy was 12.7 percent — nearly half that of both Class B (24.7 percent) and Class C (23.0 percent). The playing field, in terms of both tenant desires and rental rate differential economics, is skewed heavily in favor of Class A space, which currently only has six options for tenants seeking blocks 50,000 square feet or greater. Not even projects currently under construction, including the NC State Employees Credit Union’s downtown Raleigh headquarters and Diamond View III in downtown Durham, offer available space in that range. Class A vacancy is at its lowest rate in nearly five years and is only slightly above the 11 percent range that spurred the office building boom between 2005 and 2007. The lack of available large blocks has already resulted in lost opportunities and market timing mismatches for potential preleasing or build-to-suit tenants, such as Wyrick Robbins Yates & Ponton. The law firm recently renewed and expanded its lease in place at The Summit in the West Raleigh submarket, due to …
The weather in Cleveland in the springtime is notoriously changeable — sunny and warm one minute and then cloudy and chilly the next. The current state of Cleveland’s office market is similarly uneven. The sunniest segment is clearly the Class A market in the Central Business District (CBD). Ernst & Young Tower, Cleveland’s first multi-tenant downtown office building in more than two decades, recently opened at close to a 90 percent occupancy rate. Despite an asking rental rate in the low $30 per square foot range, which represents the top of the market, this 487,000-square-foot tower illustrates a substantial pent-up demand for new, efficient office space. The balance of existing Class A properties in the CBD are also performing well, with an average vacancy rate of 15.7 percent at the end of the first quarter. And the overall momentum downtown is strong. Nearly $1 billion of development has occurred during the past 24 months, including a new casino, convention center and medical mart completed this year. Additionally, a new headquarters for the Cuyahoga County government will be completed next year. All of these factors increase the likelihood that another office project in the CBD will start soon. Downtown’s Class B …
The demand for quality office space in Salt Lake City is higher than ever. According to Forbes, Utah’s economy continues to lead the nation, and more employers are looking to expand into the Salt Lake market. Large companies like eBay, Adobe and Boeing are setting up shop along the Wasatch Front, and more corporations will be coming soon. Several new Salt Lake office projects are in the planning stages, while others have already broken ground. With lower vacancy rates in Class A and B spaces, new developments — which vary from build-to-suit to spec projects — are encouraging. Overall Class B and C rates are hovering between 15 percent and 17 percent and inching downward as 2013 progresses, according to Newmark Grubb Acres’ research. Valley-wide, Class A properties are averaging about 11 percent, and will likely level off until more product is built. A big change is currently taking place in the office market. The past few years have been predominantly tenant-driven, but trends now show a decrease in generous landlord incentives. Property owners who were previously given four to six weeks of annual free rent may now only receive two to four weeks. Landlords are also looking at tenant …
Improvement in Dallas Dallas office market fundamentals has been supported by economic concentrations in the finance/insurance, energy and technology sectors, as well as the amenity-driven desirability of infill submarkets, namely Uptown and the Arts District. Yet, any discussion of Dallas area office expansions must begin with State Farm Insurance. The firm has accounted for a significant portion of activity, leasing more than 2 million square feet of office space in Richardson and Las Colinas in the past year. Banks and financial firms, including Frost Bank, Wells Fargo, Capital One and USAA, are expanding as improving economic conditions support lending and investment activity. With a 500,000-square-foot expansion by Denbury Resources in Plano and the growing presence of Crosstex Energy and Alon USA in Dallas, it is clear that the new energy boom is a positive for North Texas offices too. Leasing activity among technology firms is strong with Ericsson’s new building underway at its Plano campus being the most notable, although smaller software and telecom companies are also expanding, such as Hawkeye Communications in Uptown Dallas. Overall office vacancy in Dallas/Fort Worth has fallen 210 basis points (bps) from its peak in 2010. While this is certainly a strong recovery, it …