According to brokers specializing in the market, there are no less than four office projects sitting completely vacant. Thanks to a lease deal inked back in February with an executive suites operation, however, the first 144,000 sf near completion at Melvin Mark's eventual 650,000 sf Sunset Center at Tanasbourne development is now guaranteed to open no more than half empty.
A 50% vacancy rate at opening would have been all but impossible a year ago, when vacancy rates were 4%. Now, though, vacancy rates in the Sunset Corridor are at 15% and rising for existing buildings, leaving fewer prospects than ever for 450,000 sf of new developments under construction out there.
The lease Melvin Mark and development partner StanCorp Real Estate LLC secured was with Regus Business Centers, which signed a 10-year lease for 48,000 sf, or two of the three-floor 72,000-sf Building One at Sunset Center. Two floors are still available in Building 2. Annual lease rates fro the space are running $23.75-$24.75 per sf, says Melvin Mark broker Pat Schreck.
Schreck tells GlobeSt.com Regus plans to take advantage of the market rebound when it comes by offering smaller spaces than are typically available in new product. "Where we won't break down smaller than 1,800 sf, Regus will go to 250 or 300 sf," says Schreck. "That will be attractive to the next round of start-ups taht will help lead the way out" of the recession.
Leasing up the rest of the two buildings in the near term will be tough. According to the latest third-quarter data presented recently by the local chapter of the Society of Industrial and Office Realtors, there are more than 20 spaces available that are larger than 10,000 sf. A year ago, there would have been closer to two, and it's likely there would have been a bidding war to secure it.
As it stands, if you take average absorption from the past three quarters, the SIOR says it would take more than seven years to absorb all the available space currently on the market. "The market will eventually change for the better, of course, and that timeline will shrink dramatically," says Jay Jacobsmuhlen, president of Portland-based Lance Denning Properties, "but it likely will take six to eight months to turn, barring further terrorists attacks. I can't imagine we will bump along the bottom for much longer than that."
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