Northern office market on upswing, downtown ‘stagnant’

The central business district’s vacancy rate continued to hover around 20 percent through the first half of the year as occupancy fell for the second straight quarter, a trio of mid-year real estate reports show.

At the same time, the north side and Keystone Crossing submarkets are improving, bolstered by several recent office relocations to the north.

That translates into the downtown submarket having more space become available than was absorbed during the first six months of the year, according to local brokerages.

The office reports from Cassidy Turley, CBRE and NAI Meridian estimate the downtown occupancy loss at 52,000 square feet to 84,000 square feet.

“It really isn’t a large negative absorption, but the issue at hand is that there has been a large vacancy overall downtown,” said Jeff Harris, president of NAI Meridian. “If you’re not getting any positive absorption, you’re just in a static or stagnant market.”

Indeed, the central business district’s vacancy rate is nearly unchanged at 21 percent, according to NAI Meridian’s mid-year market watch.

The other two reports paint slightly better pictures, with CBRE estimating vacancy at 18.5 percent and Cassidy Turley at 19.9 percent.

“It’s just a flat market,” said Rick Trimpe, vice president of office leasing at CBRE. “But you’ve got people looking downtown. There are people kicking the tires.”

One of the biggest factors contributing to the downtown absorption decline is a large amount of office space becoming available within a single building.

Geis Properties, a division of Streetsboro, Ohio-based Geis Cos., purchased the 558,000-square-foot AT&T building at 220 N. Meridian St. from AT&T in late May.

More than 150,000 square feet already is listed with additional office space becoming available as AT&T gradually reduces its footprint in the building.

With a total of 2.1 million square feet of office inventory available for lease in the central business district, it’s going to take awhile to put a meaningful dent in the vacancy rate, Harris said.

“It’s one step forward and two steps back,” he said. “If we break even [on the absorption rate], we’re never going to stabilize.”

Meanwhile, the condition of two other large submarkets is improving. The vacancy rate within the North Meridian corridor fell from 24 percent to 18 percent within the past year, while the rate at Keystone Crossing dipped from 22 percent to 20 percent.

Tenants locating on the north side include Baldwin & Lyons, which is relocating from downtown, and Geico, which is launching a new operation. Baldwin is purchasing 111 Congressional Boulevard, a 178,963-square-foot building, and Geico leasing 109,000 square feet at 101 W. 103rd St.

The large additions to the northern submarket helped it absorb nearly 150,000 square feet of space during the first six months of the year. Keystone Crossing, meanwhile, had negative absorbtion of 54,000 square feet. That's because Sourwine Real Estate Services finished its 75,000-square-foot speculative office building last month.

The northwest submarket by far is performing the poorest, with negative net absorption of nearly 250,000 square feet, according to NAI Meridian.

The average rental rate for downtown office space increased slightly, to $18.16 per square foot, while it dropped to $16.20 in the suburbs, according to CBRE.

“It’s a very tenant-friendly market,” Harris said at NAI Meridian.