Office vacancy rates on rise, plummeting demand blamed
The U.S. office market is continuing to soften, new industry surveys show. The reports — by Cushman & Wakefield, Reis Inc., Grubb & Ellis Co. and Torto Wheaton Research — cover slightly different markets, but all reported a third-quarter jump in U.S. office vacancy rates.
Researchers attribute the spike almost entirely to plummeting demand caused by the high-tech slowdown, exacerbated across all sectors by the current recession.
Torto Wheaton Research, a division of Los Angeles-based CB Richard Ellis Services, reported a vacancy rate nationally of 12.3% in the third quarter, compared with 8.1% during the same period a year ago. The firm's numbers include all classes of suburban and CBD space.
The increase in vacancies is growing quarter to quarter. New York-based Reis Inc. recorded a 1.3% increase to 11.4% in national office vacancy rates from second-quarter 2001 for all classes of space. According to the firm, its tech-dependent markets have been the hardest hit, with San Francisco suffering a worse-than-expected 5.5% spike to 14.8% between the second quarter and third quarter. New York-based Cushman & Wakefield presented an even gloomier picture, predicting that vacancy rates in some tech markets, including Northern Virginia and Denver, may top 20% before rates level off.
Though market observers had anticipated a slight increase in national vacancy rates due to the declining economy, the events of Sept. 11 dramatically reduced growth expectations, according to Cushman & Wakefield. The company reported a 10.6% vacancy rate in its CBD properties as of third-quarter 2001. “The decade-long economic expansion, which boosted the performance of U.S. office markets, has clearly come to an end,” the report stated.
Northbrook, Ill.-based Grubb & Ellis reported a 13.02% national vacancy rate, including all classes of space. “The vacancy rate has not been this high since the second quarter of 1996,” the report noted. According to Grubb & Ellis, demand for office space will remain weak. Supply will remain high due to the continued delivery of projects in the construction pipeline. The firm predicts vacancy rates will top out at 15% by the end of 2002.
Displaced SEC finds new home in downtown New York City
The Securities and Exchange Commission (SEC), displaced following the collapse of the World Trade Center towers, has found a new home in Manhattan's “cathedral of commerce.” Previously headquartered in 100,000 sq. ft. of space at 7 World Trade Center, the SEC has leased 140,000 sq. ft. of office space in the Woolworth Building at 233 Broadway. Built in 1913, the landmark Woolworth Building gained its nickname from its ornate lobby.
The SEC took occupancy of the furnished premises a mere three weeks after the terrorist attacks on New York City. The Staubach Co., Dallas, represented the SEC in the transaction. Insignia/ESG represented the landlord, The Witkoff Group. The SEC has leased 5 floors — the entire 11th floor, plus space on floors 13 through 16 — for a 10-year term.
Century Development's 1000 Main leads renaissance of Space City
Century Development, Houston, has begun construction on a “new generation” 785,000 sq. ft. office building in the Houston CBD, part of Space City's real estate rebirth. The 36-story tower will be located at the center of Houston's Central Square, a three-block public plaza slated for completion in 2003. The building also will contain 50,000 sq. ft. of retail space and 1,566 parking spaces on site, as well as access to the city's new light rail transit system that is scheduled to begin operation in 2004.
San Francisco-based Gensler Architects designed 1000 Main, which is 80% preleased. The building will serve as the headquarters for Reliant Energy/Reliant Resources Inc. and Century Development when it opens in 2003.
Three's company: Third building in corporate complex completed
A Bethesda, Md.-based developer has completed the third project in suburban Washington, D.C.'s The Corporate Office Centre at Tysons II. The 300,000 sq. ft. mixed-use 1600 Tysons Blvd., developed by Lerner Enterprises, features a separate 400,000 sq. ft. parking facility for 1,100 cars. Bethesda, Md.-based Clark Construction Group Inc. built the 14-story, $32 million building.
The Corporate Office Centre also includes the existing 18-story, 385,000 sq. ft. 1750 Tysons Blvd. and the 17-story, 375,000 sq. ft. 1650 Tysons Blvd. The complex is home to several well-known tenants, including Morgan Stanley Dean Witter, Cushman & Wakefield, Salomon Smith Barney and Deloitte & Touche. More buildings are planned, including 1800 Tysons Blvd, a 12-story, 300,000 sq. ft. building, and 1725 Tysons Blvd., a 23-story, 600,000 sq. ft. building.
Vacancy rates for CBD office space in third-quarter 2001
| 3Q 2001 | 3Q 2000 | |
|---|---|---|
| Atlanta | 11.0% | 9.9% |
| Boston | 11.1% | 2.0% |
| Chicago | 11.2% | 8.9% |
| New York | 6.4% | 4.0% |
| San Francisco | 13.5% | 2.3% |
| Seattle | 11.9% | 1.7% |
| Washington, D.C. | 5.7% | 3.9% |
| — Source: Cushman & Wakefield of New York Inc. Numbers represent all classes of space, including subleased space. | ||