Office Market Healthier Than Most
According to Grubb & Ellis, a leading commercial real estate broker, the vacancy rate for offices in the metro Grand Rapids markets for both downtown and suburban buildings was lower than the national average.
Of 57 central business districts, GR had the 17th lowest vacancy rate of 11.2 percent for the first quarter of 2002. The national average was 12.8 percent, a full point-and-a-half higher than the local rate. Charlotte, Raleigh-Durham and Sacramento checked in with the lowest vacancies of the office markets listed at 6, 6.3 and 7 percent, respectively.
Dallas, Detroit and Oklahoma City had the most space available in downtown buildings on the Grubb & Ellis list, with vacancy rates of 26.2, 26.6, and 31.3 percent. Downtown New York had a rate of 9.7 percent for the first quarter and a ninth-place finish nationally.
The local suburban market fared even better than the downtown market when compared nationally. Suburban GR offices had a vacancy rate of 11.3 percent, which made it the fourth most occupied market of the 57 listed. Only suburbs in San Diego, Oakland and South Bend had lower vacancy rates at 8.1 percent, 10.7 percent and 11 percent, respectively. The suburban national average was 17.3 percent, six full points higher than the local market.
Suburban buildings in Dallas, Salt Lake City and San Francisco had the most vacant space nationwide with rates of 23.2 percent, 23.7 percent and 27.9 percent. Suburban Detroit had a vacancy rate of 12.9 percent, or half of the rate for the city’s downtown office structures.
The nation’s overall office vacancy rate stood at 15.7 percent for the first quarter — the highest it’s been since the fourth quarter of 1993. The vacancy rate rose by more than a point in the last quarter for the fifth consecutive quarter.
Grubb & Ellis projected that the national vacancy rate will top 16 percent this year before it begins to moderate in 2003.
As for rental rates, square footage costs tenants less here than in most markets. The national average was $30.54 per square foot for Class A buildings across the 57 markets. But in GR, the average rent was $19.20 per square foot. Only a dozen markets reported a lower Class A rental rate, with Eugene, Oklahoma City and Wichita falling under $17 per square foot.
Tenants in New York, San Jose and Fairfield County, Virginia, paid the most for Class A space with per-foot prices of $56.92, $41.02 and $35.21, respectively.
The national rental rate for Class B buildings was $24.35. Again, the metro area was lower at $16.07. Seventeen markets had lower Class B prices than GR, with Oklahoma City, Louisville and Wichita having the least expensive space at $13.03, $12.79 and $11.47.
New York, San Jose and Washington, D.C., offered the costliest Class B rates at $40.55, $30.81 and $28.17.
The Class A rate in Detroit was $26.34 and $24.66 for Class B space.
Class A and B asking rents have fallen by 14 percent and 13 percent, respectively, since these prices peaked in the fourth quarter of 2000. Grubb & Ellis predicted that rents will remain under some downward pressure for the rest of this year, and that broad increases won’t likely surface until 2005.
Copies of the Grubb & Ellis report are available from Grubb & Ellis/Paramount Properties in downtown Grand Rapids.