CHICAGO-Before the uncertainty about the world economic markets started its steep slide in late July, most office space experts were expressing pleasant surprise at a steep recovery in demand and activity. That feeling still persists, according the authors of a mid-year office report at Jones Lang LaSalle, but the market continues to bifurcate even further.
Activity is still moving up compared to 2008-9, according to the 2011 National Office Occupier Outlook. Vacancy dropped nationwide from 18.4% to 18.1%, with 73% of the markets tracked registering a decline in space options. The second quarter saw 11 million square feet of office absorption nationally, more than double the first quarter’s 4.3 million square feet absorbed.
However, Lauren Picariello, VP of occupier research for JLL, tells GlobeSt.com that the drop in confidence throughout August will likely cause companies to again pull back on growth reins. “Firms are tapping the brakes on expansion plans,” she says. “Probably in the third and fourth quarter, activity is not going to be as strong as the first half.”
The spread between the haves and have-nots is widening in many areas now, she says. National CBD vacancy is at 15%, while national suburban vacancy is at 20%. Vacancy rates in New York City’s Midtown South and San Francisco’s South of Market submarkets are lower than 7%, while rates in Cleveland and Palm Beach County, FL are higher than 24%.
The difference is even seen in company type, where traditional high-profile users such as law firms are struggling, while technology (such as Groupon in Chicago) and energy firms (Cliff Natural Resources in Cleveland) are hurrying to add space.
This continued split of space demand of CBD vs. suburbs, core vs. secondary and even firm type has created pockets where, combined with only 18.9 million square feet of under-construction space, demand is great and supply is short, leaving companies with relatively few options for large blocks. In these areas, such as San Francisco, New York City, Washington, DC and Boston, Picariello says, tenants are pressured to act before favorable terms become more difficult.
For most of the country, however, the rate of office demand will slow down, though likely not drop negative, she says. “It’s hard to accurately assess the second half,” Picariello admits. “You look at the job cuts being announced by banks, but then look at the strength of the high-tech sector with social media and cloud computing, it’s just such a different story. We definitely don’t think activity is going to remain as strong as the first half.”
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