Learn what CCIMs across the country expect to happen in their markets.
Nationally, the office market should pick up in the
second half of 2004 with the vacancy rate declining from first
quarter's 17.9 percent to around 17.2 percent by year-end. Absorption
through the remainder of the year should total around 25 million square
feet. Asking rental rates are likely to end the year slightly lower,
although concessions already are beginning to diminish in the most
desirable buildings and submarkets.
the central business district vacancy rate is nearly 400 basis points
below the suburban rate (15.4 percent versus 19.3 percent). CBD
construction totals 1.4 percent of current total inventory versus 1.1
percent in the suburbs. The suburban construction pipeline has emptied
out more thoroughly, andthe suburbanvacancy rate should decline more
briskly than the CBD vacancy rate in the next few quarters. However,
CBD construction above 1 million sf is a factor in only five markets:
Washington , D.C. , Chicago , New York , Boston , and Philadelphia .
office-using sectors of the economy -- information, financial
activities, and professional and business services -- are growing
again, creating 323,000 new jobs year-to-date through May. While part
of this demand isbackfilling shadow space (empty space not being
marketedfor lease or sublease), it should be enough to generate
moderate to healthy absorption totals through the remainder of 2004.
four of the core property categoriesremain hot, but as interest rates
rise, newer,well-leasedproperties in primary markets should hold
their value better than older properties with tenant rollover issues.
Demand is especially strong for value-add opportunities, in which
buyers can acquire problem properties, renovate them if necessary,
lease them up, and sell at a profit. With interest rates rising,
passively held properties might see their values drop and
capitalization rates rise, at least for all but the most sought-after
class A assets where investor demand may prop up values.
Mullin, CCIM, SIOR, Grubb & Ellis, Newport Beach, Calif., and
Robert Bach,Grubb & Ellis' head of research in Northbrook, Ill.
Wilmington , Del.
's office market of approximately 12.5 million sf in 155 buildings will
remain somewhat flat during the second half of the year. The first half
saw 450,000 sf in leasing activity, which is not bad, but two of the
transactions comprised 310,000 sf. This leaves a relatively small
140,000 sf remaining for the balance of the leasing activity in the
entire market. While the number of tenants looking at space has
increased slightly,there is still a shortage of actual signed leases.
the amount of space available is approximately the same in the CBD and
suburban markets, downtown has been getting the bulk of recent
activity. However, 10-year averages favor the suburban market: 498,890
sf to 312,457 sf.
Wilmington 's office
market is dependent on the economy and is a good exampleof the jobless
recovery. For instance, credit card companies, which make up the
largest component of the employment base, are flat and have been for
the past nine to 18 months. The balance of corporations that have a
presence in Delaware also are holding back on commitments to lease
additional or new space.
segment has been the most active for investors over the past three
years, but it has slowed.Right now industrial product has the most
upside potential, but it has a 15 percent vacancy rate across the board
in all property types and submarkets, which will keep sales activity
-- Pete Davisson, CCIM, SIOR, Jackson Cross Partners, Wilmington
Although New Orleans ' economy has become less dependent on the oil
industry, it still is the primary market influence on the city's office
sector, and as consolidations within the industry continue, the decline
in national oil companies' presence is having a negative affect. The
good news is that small to medium-size companies are taking over a
large amount of the in-shore oil business. Further, New Orleans '
healthy tourism market is prompting developers to convert many
functionally obsolescent office buildings into hotels. The port and
maritime industries are expanding with large contracts being announced
for both military and commercial shipping interests. The local
high-tech industry also is growing due to large military contracts.
the office market's estimated 600,000 sf of sublease space,
approximately half of that has been backfilled. Suburban New Orleans '
office market should see slight decreases in vacancy with some possible
upward pressure in rents by year-end, advancing rates 50 cents per
square foot to $1.00 psf. The CBD will see slight increases in vacancy,
and rates should hold steady around $15 psf.
is the hottest investment property, followed by multifamily. Office and
industrial continue to lag, although if vacancies decrease, investors
will have opportunities to purchase properties at lower net operating
incomes, which should show higher upside in the next five to 10 years.
-- Richard E. Juge, CCIM, SIOR, Re/Max Commercial Brokers, Metairie , La.
Tampa , Fla.
There are already positive signs that Tampa 's suburban office
submarkets, particularly Westshore, are experiencing recovery. Lease
rates are increasing to pre-recession amounts, and vacancy rates are
declining. The submarkets are recovering more quickly than the Tampa
CBD due to the available amenities in these areas, such as free
parking. (Only two buildings in the Tampa CBD offer this convenience.)
A submarket's location relative to the airports -- Tampa International
and St. Pete/Clearwater Airport -- is a key factor to its recovery. The
easy access to travel from greater Tampa Bay is important to corporate
leaders opening offices in this area.
's CBD is showing some absorption, and residential development is
helping convince people that living downtown is a positive experience.
Downtown Tampa will be the place to work for people who want to live
the urban lifestyle when all of the residential development comes on
line in about three years.
factors aiding recovery are continuing corporate relocation and the
increase in a college-educated work force from the local institutions
including University of South Florida , University of Tampa , and
Stetsen University College of Law.
investors looking for short-term gains will look at the suburban
submarkets, since they are showing recovery at this time. Long-term
investors will include the CBD. At this time, high prices are keeping
private investors on the sidelines for the most part.
-- Steven Hughes, CCIM, Denholtz Associates, Tampa , Fla.
Palm Beach County , Fla.
In southeast Florida , specifically Palm Beach County , the office
market is strong, regardless of potential interest rate increases.
Factors affecting continued growth are increasing occupancies, stable
rental rates, strong demand, and users' belief in the local market.
Suburban office is stronger with tenants because of the markets'
proximity to highways and homes. For a small group of CBD
developers/investors, certain downtown office properties will be in
demand with limited availability.
Investors currently favor retail properties because of high occupancy and rental rates, as well as pent-up demand.
-- Bill Kohlhepp, CCIM, Marcus & Millichap, Fort Lauderdale , Fla.
Cleveland 's downtown office sector continues to struggle as the
vacancy rate has climbed to 22 percent for class A and B buildings.
Mergers, acquisitions, bankruptcies, and a lack of employment
opportunities have created a challenging market.The addition of a new
federal courthouse also increased unused space as government offices
vacated older buildings for the new building. Absorption over the past
two years has been negative. Most of the activity has centered on the
expansion of Cleveland-based companies rather than a move of companies
from other markets. However, the city should continue to see more
internal growth that will absorb space.Although the suburban markets
also are experiencing higher-than-normal vacancies, their vacancy rates
are slightly lower. New construction is minimal, so more space should
be filled to accommodate growth.
Due to these concerns, investors are focusing more on apartments, retail, and single-tenant net-leased buildings.
-- Vicki Maeder, CCIM, CB Richard Ellis, Cleveland
Indianapolis will experience slow recovery in the second half of this
year.Vacancy rates should fall by .5 percent to 1 percent.
Consolidations and mergers continue to hamper the office market, such
as Galyan's recently announced closure of its 100,000-sf headquarters
in Plainfield due to its acquisition by Dick's Sporting Goods.In
addition, layoffs continue to offset anyjob gains from the recent
downtown vacancy and lease rates should recover more quickly due to a
lack of new construction and planned condominium conversions of class B
and C office buildings (which will remove these properties from vacant
Investors are likely
to favor retail first, thenindustrial properties.Office and apartment
buildings are not hot investments right now.
-- Samuel F. Smith II, CCIM, Meridian Real Estate, Indianapolis
Minneapolis-St. Paul's office market vacancy rate is at 16 percent, and
vacancy rates including subleases is at 18.5 percent. The vacancy rate
is beginning to level off, and the market should regain health in the
second half of 2004. The forecasted increase in new jobs will help
absorb the office space vacancies. To meet the demands of increased
staffing, small to mid-size companies will take up most of the space,
while larger companies will begin to fill their existing shadow space.
suburban office market is healthiest due to a number of contributing
factors. First, there is less available suburban office space. Also,
more decision makers live and work in the suburban market. Finally,
many large corporate users in the CBD have built their own facilities,
which has taken them out of the multitenant market.
office buildings will remain the strongest performers in the office
sector. The medical office supply has seen tremendous growth over the
years, and this trend should continue.
-- James Damiani, CCIM, SIOR, Welsh Companies, Minneapolis
the remainder of 2004, Minneapolis ' office market will be at least
twice as active as in the first half of the year. Corporate real estate
executives finally are getting the signal to expand, and the companies
are realizing that future growth only can come through acquisition or
Both suburban and CBD
office buildings have been experiencing difficulty in the
Minneapolis-St. Paul market over the last few years. The suburban
office sector will improve first, during the second half of 2004, with
the CBD recovering in 2005.
office buildings will become very attractive to investors during the
second half of this year. A number of class B office buildings at 50
percent to 75 percent occupancy are available at or under replacement
costs. This vacant space should be absorbed during the next 18 to 24
-- Charles R. Henrich, CCIM, Spectrum Development Group, Eagan , Minn.
Lincoln , Neb.
's office leasing activity seems to be improving. Speculative buildings
constructed during the early part of this decade hit a slump but slowly
are filling up. Well-priced class B space that is well wired for data
or recently renovated is doing well. The CBD will have some space
absorbed by the Nebraska government the second half of this year. The
market currently has a shortage of large office space -- there is not
much product available greater than 20,000 sf.The market also is
unable to fill requests for industrial developments requiring a large
amount of acres.
factor can account for improved office absorption. However, businesses
that previously were hesitant to expand are doing so now. Little spec
office space has come on the market, except for very small buildings --
10,000 sf or less. Healthy industries such as banking, insurance, and
medical probably absorbed a lot of space.
continues to be fairlyhealthy, though the discounters are performing
better than the upscale retailers. A new Wal-Mart was built in south
Lincoln , and the submarket is expected to explode. Auto dealers
vacated alarge area in the central retail corridor, which is in the
process of being declared blighted; this retail area is bottoming out
and should see some new development soon. An antigrowthcity council is
pushing residential lot prices to unprecedented inflationary levels,
which also will have a positive ripple effect on
commercialdevelopment, as long as the attitude doesn't drive
businesses out of town.
The CBD has been
healthy due to the city, county, and state governments' presence and
the University of Nebraska . Certain companies such as law firms,
lobbyists,and banks like to locate near the courthouse and the capitol
building. The trend in past years toward more efficient use of office
space might put downtown at a disadvantage. A 5 percent improvement in
suburban vacancy wouldn't be surprising, but that much of a change in
downtown's vacancy rate by the year-end is doubtful.
-- Robin Eschliman, CCIM, NAI FMA Realty, Lincoln
Bismarck , N.D.
Bismarck office market will be lackluster in the second half of this
year due to increased e-mail and computer server capacity, which allow
individuals to work from home. The CBD office market remains weak, but
the suburban class A office sector will continue to grow. Little demand
for class B and C properties exists.
is the strongest investment sector due to increased need for
distribution and small industrial supply houses. Also, urban industrial
occupancy is high, and little new construction is in the pipeline.
-- Skip Duemeland, CCIM, Duemelands Commercial, Bismarck
Albuquerque , N.M.
's office market will continue to be relatively flat with continued
negative absorption in the downtown and southeast submarkets and slight
increases in the north Interstate-25 and uptown submarkets. Three new
spec office products totaling approximately 90,000 sf will come on line
in the north I-25 submarket and will be quickly absorbed over the next
six months. The flight of substantial General Services Administration
tenants from the CBD and airport submarkets to northern suburban
submarkets will continue. The shift from mid-rise to walk-up properties
will continue to benefit the suburban markets for the next 12 months.
will continue to focus on well-located single- and two-story walk-up
product with parking availability. The traditional mid-rise property
will continue to devalue with flat rents and increasing operating
expenses. The excess of capital chasing product will keep cap rates low
for office properties with average occupancy and long-term leases. The
lack of investment properties is forcing certain investors to overpay
for exchange properties, keeping overall office sale prices from
dropping with the flattened returns.
-- David A. Genrich, CCIM, Real Estate Advisors, Albuquerque
San Francisco Bay Area
Overall, the greater San Francisco Bay Area currently has 106 million
sf of vacant office, laboratory, and research and development space
available, with the bulk of this (56 million sf) available in Santa
Clara County . Submarkets vary throughout the Bay Area in terms of
vacancy rates, rental rates, and market velocity, but overall very few
tenants are seeking new space in excess of 10,000 sf, while the
small-tenant market in the 2,000-sf to 10,000-sf range is particularly
number of factors are contributing to the current office market
sluggishness. Corporate downsizing continues due to greater
technological efficiencies and companies shifting operations out of the
high-priced California environment to low-cost-of-business states.
Global offshoring is another element, which in a number of cases has
caused existing tenants to terminate 100,000 sf or more.
sales of vacant buildings is one bright spot in the San Francisco Bay
Area office market. Low available interest rates make purchasing a
property an attractive proposition to investors. The investment sales
market, particularly when there is a credit tenant with a long-term
lease in place, is very hot with multiple offers and record-setting
prices for quality office product in some of the more dynamic
-- Jeffrey S. Weil, CCIM, Colliers International, Walnut Creek , Calif.
In the San Diego area, office absorption should increase in the second
half of 2004 as remaining quality sublease space has been absorbed in
the past six to nine months. The primary economic factor affecting
recovery is growth in the diversified business sectors of San Diego 's
economy. Institutional buyers continue to express interest in quality
office properties as demand for office space remains strong and lack of
developable land increases future development costs. Demand for quality
space continues in both the downtown and suburban sectors. The overall
countywide office vacancy rate is 11.5 percent, and absorption for 2004
should be approximately 2 million sf.
-- Michael Dyer, CCIM, Burnham Real Estate Services, Carlsbad , Calif.
Winnipeg , Manitoba
Winnipeg 's office sector will have slight positive absorption during
the next year. The suburban market has less spec space and ample
parking, and the southwest quadrant should see a lot of small space
occupied. The northwest airport area still has room for conversion to
low-density office. The CBD has a fair amount of shadow space and new
opportunities. In 2006 a more-than-600,000-sf hydro building will be
built in downtown Winnipeg , which will create vacancy in the southwest
and CBD areas.
continues to be a strong investment choice, with new formats coming to
our area. The industrial investment sector is flat, and the multifamily
sector has a shortage of supply to create an investment market.
-- Sandy G. Shindleman, CCIM, Shindico Realty, Winnipeg