How do the office fundamentals compare to industrial?

Notes from our researcher, Steve Triolet
After talking about the improving industrial sector in our last blog post, we are taking you through the office fundamentals, which tend to lag behind the industrial sector. This is largely due to the simple fact that the lead time for office construction is several years where a new industrial property can be completed in six to nine months.
Because of this long construction cycle, the market may have speculative office properties deliver two to three years after the economy has gone into recession.  A prime example of this is 1717 McKinney, Granite’s 371,000 square foot speculative property in Dallas that is scheduled for completion this month.  Currently, only one major tenant, Huitt Zollars, has signed a lease for approximately 40,000 square feet. The remainder of the building is currently available; though rumors indicate one to two other sizable deals are in the works. 1717 McKinney is the last major speculative office project for this construction cycle – and with the recession coming to a close, office market fundamentals are expected to improve in the later half of 2010 which is what we have all been holding our breath for.
Over the past year the market has been performing poorly with negative net absorption, a rising vacancy rate, and falling rental rates. The first quarter of 2010 did show a glimpse of recovery.  For example, the total vacancy rate dropped from 25.2 to 24.9 percent. This was primarily due to a few large tenants who opted to take advantage of the down market and purchase properties before the market recovered. Occupancy and average asking rental rates which had been steadily falling over the past several quarters had flat lined, decreasing less than one percent from the end of 2009, so the market had essentially hit bottom.
According to many economists, the Central United States, specifically Dallas/Fort Worth, is leading the way to recovery. We anticipate the market to be looking up when the Super Bowl rolls into North Texas next February.  A lot can happen in nine months – we may even hear rumblings from developers contemplating their next office development. The old Texas Stadium site is looking like prime real estate from where I am sitting.

One Response to “How do the office fundamentals compare to industrial?”

  1. Pigramismeami Says:

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