"We think that the three-year slide created by the dot-com demise and prolonged by the ensuing recession has halted," says Brad Van Blois, research director at Colliers International, in the company's third quarter report. "Although there was only slight positive absorption registered this quarter, signs point to the fact that the worst may finally be over as rental rates continue to stabilize and vacancy rates look to trend downward."
The third quarter saw 14,774 sf of positive absorption. Net absorption for the year remains negative to the tune 222,482 sf. "Most of the troubled companies have already dealt with their real estate woes by either relocating or downsizing," states the report, "and with corporate profits returning, companies that have weathered the storm this far most likely will survive, permitting further mass vacancies."
The effective rent for class A Financial District space increased for the second consecutive quarter and now stands at $30.67 per sf per year, compared with $30.32 in the second quarter. Three large expensive lease transactions in the third quarter attributed to this rise: Callan Associates' 50,000-sf lease at 101 California, Jones Day 49,000-sf lease at 555 California and Pacific Growth Equities 34,088-sf lease at 1 Bush.
On a market-wide basis, all classes overall experienced a slight reduction over the last three months, with class A, B and C rents now at $28.46, $21.59 and $16.61, respectively, from $29.40, $21.76 and $17.07 at the end of the second quarter. "The office market will remain a tenant's market for several more years because the city is inundated with 13.7 million vacant square feet," Van Blois says. "Although a bottom appears to have been reached, it's quite possible that the market will bounce along the bottom because companies remain reluctant to hire and expand."
Meantime, the large gap between direct and sublease rents continued to widen, according to the report. Class A direct rents in the Financial District were $31.73 at the end of the third quarter, representing a 3.7% drop from $32.89 at the end of the second quarter. Sublease rents dropped 9.6%, from $20.74 at the end of the second quarter to $18.92 as of last week.
Colliers projects similar results in the fourth quarter with zero-to-slight positive absorption and further rent stabilization.
Continue Reading for Free
Register and gain access to:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
