Areas office vacancies climb to highest level
A report from CB Richard Ellis of Grand Rapids pegged the vacancy rate in the county’s office market at a record level: At the end of the second quarter this year, it had reached 21.9 percent. That meant that roughly 3.5 million square feet of the market’s total 16.1 million square feet of space was vacant in June.
The rate was even higher in the suburban market where vacant space accounted for 23.7 percent of all office space. In the southeast suburban market, the rate was 26.8 percent. The rate for the downtown market was 19 percent. The overall office market lost roughly 60,000 square feet of occupied space during the first two quarters of 2010.
“Over the past six months, vacancies have continued to escalate throughout Kent County, and range from 16.2 percent (SW submarket) to 26.8 percent (SE submarket). Office vacancies throughout the market average 21.9 percent, significantly higher than the national figure of 17.7 percent,” wrote Jill Langosch, CBRE GR vice president of research, in the second-quarter report.
“Excluding medical office space, Kent County professional space averages 22.7 percent vacancy. Of that base, Class A space averages 22.3 percent vacancy, Class B space averages 20.8 percent vacancy, and Class C space averages 37.8 percent vacancy,” Langosch added.
As for medical space, which represents about 9 percent of the total office market, the vacancy rate was 11.4 percent at the end of June, up from 11.2 percent at the beginning of this year. Class A medical space had a vacancy rate of 7.1 percent, while Class B space was 18.8 percent vacant.
“Firms continue to consolidate and ‘right-size’ following the economic recession, and though downward pressures on office fundamentals are easing, the market remains weak and fundamentals are still deteriorating,” said Langosch.
Despite the depressing news, the CBRE GR report pointed out that some large lease deals did happen during those six months. PST Services, Grid70, Grand Health Partners and AECOM Technical Services signed leases for space that ranged from 18,000 square feet to 30,000 square feet in the downtown and the southeast office sectors. Some tenants also upgraded their spaces, and in doing so, were able to take advantage of lower rental rates.
“The office market continued to experience a ‘flight to quality’ as a positive 137,260 square feet of Class A office space was absorbed. The fact the final absorption for the past six months is indicative of the anemic absorption numbers coming out of the Class B and Class C space,” said Langosch.
The report also noted that asking rental rates didn’t drop during the past six months. Class A space ranged from $16 to $20 a square foot, Class B from $12 to $16, and Class C from $8 to $12. “These asking rates typically include concessions for larger Class A/B space users, which average three months of free rent on a five-year lease term,” said Langosch. “Institutional landlords with access to capital have the advantage in luring tenants, as landlords without access to capital cannot provide leasehold improvement packages.”
With demand for office space expected to remain low, CBRE GR has projected that rental rates will remain stable and absorption will turn out to be flat for the third and fourth quarters.