Office vacancy rates expected to grow through 2009

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Colorado’s Grubb & Ellis commercial real estate and investment brokers predict a gradual quarter-by-quarter office vacancy rate increase through the rest of the year.

Senior economist Bob Bach said lease rates will continue their downward slide, increasing 17.6 percent for second quarter. As a result, some tenants who are able to do so will take advantage of concessions and declining rents, signaling the market’s underlying health.

“What is different about the effect of this recession compared with others is that the negative trends are moving fairly gradually,” said Mark Ballenger, executive vice president and managing director of Grubb & Ellis’ Denver office. “We are experiencing gradual increases in vacancies and a steady downward slide in rental rates rather than significant shocks to the market.”

Citing a possible “flight to quality,” if Class A buildings begin to empty out and rent rates decrease dramatically, Bach stopped short of predicting tenants would be confident enough in the economy to move in large numbers.

Unlike Colorado Springs, Denver saw “significant” job growth in May – the first net job gain for the Mile High City since August 2008, fueled by companies like DaVita, Kirkpatrick Oil and ICF International. As a result, both Ballenger and Bach foresee some corporate expansion, requiring additional office space.

In the Pikes Peak region, through second quarter, office space net absorption stood at a negative 282,370 square feet, but on the positive side, 336,835 square feet office space was leased during the first half of the year, based on the Turner Commercial Research “Commercial Availability Report.”

Average rents have remained slightly more than $14 since late 2007, and average vacancy rates for the quarter jumped 2.1 percent since January to 14.4 percent.