NAI NBS Second Quarter Office Report: Central City Vacancy Staying Stable, Suburban and Vancouver Vacancy Rising

Central City office vacancy stayed essentially stable from First quarter at 10.33%, with positive absorption of 47,803 sf. Class A space in the Central Business District remained tight at 6.25% vacancy, with considerable movement in spaces under 10,000 sf. No new available space will deliver in the CBD until Shorenstein’s First & Main finishes construction in March 2010. In early April, TMT Development halted work on Park Avenue West, a 315,000 sf Class A tower scheduled to open in 2011 with anchor tenant Stoel Rives, because financing dried up. The company plans to take out the top 10 stories of condominiums from the plans and is targeting to begin construction again in early 2010. We are continuing to see tenants interested in moving to the urban core from the suburbs – for instance, SAIF moved into 34,000 sf at Crown Plaza at 1500 SW First Ave in April. Tenants are also often seeking to renew leases rather than relocate, and ADP announced that it would stay in 115,180 sf at ADP Plaza for seven more years.

Suburban office vacancy increased nearly two percentage points to 19.06%, with negative absorption of 183,415 sf. Southern 217 vacancy increased almost four percentage points to 25.12%, with considerable space available at Triangle Corporate Park – Building 3 with the departure of EthicsPoint. Part of the increase in Southern 217 and the Sunset Corridor area may be attributed to the failure of financial firms – many are or were located in these areas. Kruse Way sustained a noteworthy increase in vacancy of almost nine percentage points to 21.08%. Absorption in this submarket was a negative 80,857 sf, largely due to two entire floors available at Kruse Woods V. In general, an increasing amount of sublease space is becoming available, and rental rates are dropping, with landlords working to attract tenants through free rent and other concessions.

Vancouver vacancy increased about one and a half percentage points to 17.71% with negative absorption of 81,699 sf, largely in small spaces. Vancouvercenter gained a few smaller tenants, including Purple Language Services and Advantel. Tenants are increasingly interested in renewals and are seeking renewals well before their current leases expire to take advantage of the current market conditions.

The full report is available on our Web site.