"The impact of the recession compounded by the events of 9/11, however, created a slowdown in the local office market that has turned the tables a little more in the tenant's favor," said Kimberly Gatley, REOC's research director.
In the CBD, class A rent was $20.78 per sf, down from $20.80 per sf at the end of the 2001 first quarter. Outside the CBD, class A space rented for an average of $21.16 per sf at the end of the 2001 first quarter, off from the $21.16 per sf recorded a year earlier. "Tenants, especially credit tenants, are finding more options and better bargains than were available last year at this time," REOC said in its analysis of the figures.
The citywide vacancy rate rose to 14.3% from 11.9% in 2001. The rate jumps to 17.9%, including the more than 775,000 sf of sublease space. There was more than 81,000 sf of negative absorption in the first quarter.
"Competition created by sublease space and increasing vacancies work to keep a lid on rental rate increases and at the same time delay new construction as the market focuses on absorbing existing space before adding new," said Todd Gold, REOC's president.
REOC says owner-driven building continues, but that speculative construction has slowed significantly. Current projects, Two Twin Oaks, a Koontz-McCombs project at 227 N. Loop 1604 East, and Building 6 at Parkway Plaza, a Transwestern project at US Highway 281 and Arion Parkway, are substantially pre-leased.
The citywide average rental rate rose 20 cents to $17.69 per sf, which, REOC said, conceals the rental concessions easily found in the market. Concessions include a few months of free rent.
But tenants looking to move or expand should act soon, REOC says. A lack of new construction and a strengthening economy could put the advantage on the landlord's court.
"We look at 2002 as a year to stabilize occupancies while property owners compete head-to-head for tenants moving laterally around the market," Gold said. "If the economy continues to improve, then as the year ends, the market should be strengthening and seeing things shift back toward a landlord's market.
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