Third quarter shows positive absorption

by admin

I am pleased with this quarter’s findings, not ecstatic, but pleased. After adding more than 200,000 square feet of office space to the market in the last two quarters, I am happy to announce that we have absorbed nearly 60,000 square feet this quarter. This is the first decrease in the amount of office space since the fourth quarter of 2010. This was due in large part to the sale of the CH2M Hill building along Williston Road, which accounted for 31,000 square feet of the 60,000 square feet in this report.

Nationally, we saw the largest absorption of office space since third quarter 2007 (12 million square feet). Office fundamentals have improved locally. Vacancies are decreasing, there are fewer concessions, rates are stable, and lease terms are increasing. Regarding concessions, for those being asked for by tenants, landlords are replying with a demand for longer-term leases. The good news is that tenants are agreeing to them, hopefully because they see a brighter future in their own business.

In terms of vacancies, there is a notable difference in showing and lease activity, perhaps because there is less uncertainty in the business world. This is further evidenced by the longer-term deals that are being negotiated. We are seeing fewer of the 1-year leases requested and more 3-year leases with options to renew.

The office sector is all about jobs, which typically will trail a positive job turnaround by about 12 to 18 months. The U.S. added 1.8 million jobs from mid-2010 to mid-2011. In addition, we have a strong push for entrepreneurship locally, which will help over the long term. Also, look out for the medical/healthcare sector to heat up soon; it’s already the fastest growing sector nationally. As usual, the financial services, professional’s services, and legal professions continue to be strong clients in this market.

While demand is up, there are still only so many prospective tenants at one time looking for space. We continue to advise our landlord/seller clients to focus on curb appeal, showroom condition on the inside, and flexibility in lease negotiations. If negotiations cease with a prospect, you may wait an average of 358 days before you get another chance to fill your office space. Can you afford that?

Overall, I'm optimistic. I see the sun rising and the light and the end of the tunnel, and soon we'll all be singing “Happy Days are Here Again”. It looks good on paper.

— Beau Beery, CPM, CCIM, MSRE, owner and president of Coldwell Banker Gainesville-based Commercial M.M. Parrish Realtors.

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