Factoring in sublease space, the relative numbers were 15.46% rising to 15.86%, indicating that the vacancy rates may have hit bottom.
These percentages are reflected in the small overall market absorption of 113,549 sf at the end of the second quarter turning into a negative absorption of 260,261 sf at the end of the third quarter.
However, market rents are under considerable pressure dropping from an average of $19.18 per sf in the second quarter of 2001 to $18.55 per sf in the third quarter.
"The current market conditions continue to indicate an oversupply of space," says Jeff Castleton, vice president, Jones Lang LaSalle. "Rental rates have fallen approximately $2 per sf in the Southeast Suburban market and between $1 to $2 downtown. However, we don't see vacancies increasing through the remainder of the year."
Castleton points out that the current statistics do not reflect the impact on the economy from the terrorist attack on Sept. 11.
He did say however, that the increased uncertainty in the economy because of the attacks is causing companies to put real estate decisions on hold. He believes companies will move forward, but it is a question of time. He also believes new construction will be limited to those projects with financing in place.
Vacancy rates have improved between second and third quarters in all markets except the Southeast Suburban, Northwest and CBD. The Southeast market improved 12%.
"It's really important to put the current real estate market in perspective," Castleton says. "The boom years of 1999 and 2000 were an aberration. Technology and communications companies were growing so quickly that they were acquiring space at almost any cost. The amount of leasing activity and the cycle-time to complete a deal is much like it was prior to the frenzy the market experienced in 1999 and 2000."
Castleton says it is unlikely that the economy will begin to recover before the second or third quarter of 2002. Even that is dependent on how the national economy digests the terrorist attacks over upcoming months, he notes.
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