Premium office space availabilities dwindle nationwide.
These findings highlight the firm's national office statistics through the third quarter of 1997.
"For the past several years, demand for Class A office space has increased, demonstrating that downtowns are on the rebound," said Arthur J. Mirante II, president and CEO of Cushman & Wakefield. "Crime has abated, years of belt-tightening have yielded budgetary surpluses, urban-centered businesses such as financial services have benefitted from the national economic expansion and local governments have consciously created pro-business environments. These factors have combined with virtually no new construction in the downtowns to drive the increased demand for space."
"The suburban markets continue to attract corporate tenants because of their accessibility and proximity to skilled labor pools," said Cushman & Wakefield Managing Director of Research Maria T. Sicola. "However, the rapidly declining amounts of Class A space in both the downtowns and the suburbs are beginning to level the playing field between the two. Despite new construction in many suburban markets, the decline in availability of premium space has also occurred."
Overall Class A Office Space Available Shrinks
Both the downtowns and suburbs experienced dramatic declines in Class A office space availability. This is especially evident when current availability statistics are compared with statistics from 1992, the bottom of the severe real estate downturn.
For example, Boston's downtown availabilities fell nearly 73 percent, declining from 4.2 million square feet (msf) in the third quarter of 1992 to 1.1 msf in the third quarter of 1997. Its suburban availabilities fell by more than 50 percent during this period, from 5.3 msf to 4.3 msf.
Downtown Manhattan's availabilities fell about 62 percent during this period, from 14.5 msf down to 5.5 msf. Midtown Manhattan's availabilities were nearly as dramatic, falling 45 percent, from 27.2 msf to 15 msf.
Washington, DC followed this pattern as well, as availabilities declined 64 percent from 4.5 msf in 1992 to 1.6 msf in the third quarter of 1997. Philadelphia's downtown availabilities fell close to 44 percent from 5.2 msf to 2.9 msf during this period. San Francisco's downtown availabilities fell from close to 4 msf in the third quarter of 1992 to 1.3 msf in the third quarter of 1997, a 68 percent decrease.
Suburban markets also experienced dramatic declines in Class A availability. Northern New Jersey's availabilities fell nearly 41 percent, from 8.1 msf to 4.8 msf. Suburban Dallas availabilities dropped 77 percent, from 8 msf in the third quarter of 1992 to 1.8 msf in the third quarter of 1997. Suburban Chicago's availabilities dropped more than 66 percent, from 8.6 msf to 2.9 msf during this period.
The West Coast also experienced declines in Class A availabilities. Los Angeles-West experienced a decline in availability of more than 59 percent, from 6.6 msf down to 2.7 msf during the periods between the third quarter of 1992 and the third quarter of 1997.
Orange County's downtown experienced nearly a 50 percent decline in availabilities, from 5.5 msf down 2.5 msf during this period. Suburban Orange County saw a less dramatic decline of slightly more than 25 percent, from 1.1 million square feet down to 775,000 square feet during this period.
The Downtown Resurgence
Downtowns experienced significant declines in vacancy rates in the third quarter, when compared with last year.
In New York, vacancy rates in Midtown Manhattan dropped from 11.9 percent one year ago to 9.8 percent today. Midtown South's vacancy rate similarly dropped from 12.4 percent last year to 8.9 percent today. The most dramatic results were seen in the Downtown Manhattan market, where vacancy rates dropped from 19.1 percent last year to 13.6 percent today.
San Francisco, Detroit and Dallas also experienced declines in vacancy rates, falling to 4.5 from 8.1 percent, 19.3 percent from 22.7 percent and 30.3 percent from 37.6 percent, respectively.
Class A Rental Rates
With no new construction completed this quarter and demand inching up, Class A rental rates in downtowns generally increased as well.
Midtown Manhattan's rate was up $3.42 psf over last year to $39.10 psf.
San Francisco saw the most dramatic increase of the downtown markets studied, up $7.20 over last year's third quarter, to $35.16 psf. Boston's rate was up $4.11, to $36.54 psf.
Suburban markets also saw increases in Class A rental rates. For example, suburban San Jose was up $10.80 over last year's third quarter, to $35.64 psf, due to Apple Computer placing over 500,000 square feet of prime space on the market, reflective of its continued downsizing. Suburban San Francisco and San Francisco Peninsula were up $6.77 and $8.88 psf to $26.76 and $35.88 psf respectively.