During the quarter, overall vacancy (direct and sublease space) increased to 21.8%. Midway through 2001, the vacancy rate was 14.8%. The 2.9 million sf of sublease space on the market accounted for 37.3% of the total vacant space. The far northwest submarket had the highest vacancy rate with 33.6% and the most sublease space, 1.7 million sf.
The average rental rate citywide was $23.15 per sf, down 16% from the 2001 first quarter. In the CBD, class A rent dropped to $29.19 per sf, the lowest level since 1999. The northwest and far northwest submarkets suffered sharp declines. Northwest rent fell 24% to an average of $21.78 per sf and the far northwest rent dropped 23% to $22.85 per sf. In the southwest submarket, rent dropped just 6% to $24.24 per sf.
First quarter transactions highlighted in the report were lateral moves or, in the case of the biggest lease, a renewal. That was Fulbright & Jaworski law firm's decision to stay in its 117,000 sf at One American Center in the CBD, a deal announced during the quarter.
Colliers reports deal velocity has increased since the end of 2001, but it still seems slow compared to the late 1990s and 2000. "This lackluster activity is forcing landlords to reduce rates, permit concessions and become more innovative with building use and amenities," researchers said.
The Colliers report includes 1.8 million sf of office-flex space that it previously hadn't considered. The space is one- or two-story buildings without loading docks and office-compatible parking ratios. Most of the space is in the far northwest submarket. Overall, the office-flex space added 450,000 sf to the vacancy total.
While building owners offer lower rents, moving expense allowances and turnkey finish-outs, they are haggling a bit over the length of leases, according to Colliers. While some tenants are seeking early renewals to take advantage of the current rates, building owners are looking for shorter leases so they can take advantages of rising rents. When they do rise, that is.
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