The vacancy rate in office space increases in 4th quarter of 2010
While the total amount of office space in Frederick County, Maryland has remained unchanged for the last 2 years at 2,201,000 square feet, a net of about 35,000 of that figure returned to the market in the 4thquarter of 2010, according to REIS.com, real estate market reports (REIS Frederick County Maryland Office Report for the 4th Quarter of 2010).
For the year, the vacancy rate bumped up from 17.7% in December 2009 to a figure of 18.0% totaling over 396,000 of unoccupied square feet.
This compares to a year end figure 15.5% vacancy rate in the total Suburban Maryland SMSA. The Frederick County total of unoccupied office space represents about 3.6% of the over 10 million square feet that is vacant in that region.
REIS reports that the effective full service lease rates in the total Frederick County office real estate market ended the year at $14.73 per square foot of gross leasable area. This is reduction of 2% over the previous year. This of course includes not just recent leases, but also all existing rents.
The reporting service defines “Effective Rent” as the average market rent, less the present value over the Lease term of free rent and, where applicable, the portion of tenant improvement above standard and/or other concessions, including moving allowances and waived fees.
The $14.73 figure represents about 76.8% of the average current asking price of $19.20 per square foot. This asking figure has also decreased in the last 12 months by 1.8%.
Local MAI appraiser Terrence “Bud” McPherson stated that he has noticed that the small office space market of under 20,000 square foot floor plates appear to be softer than the market for office space above that figure.
Michael Pugh, another local appraiser who has contributed articles to the MacRo Report Blog several times, states that he sees encouraging signs in the office leasing market. While the market is “still dragging,” there are a number of “bargains out there” which have created a greater level of activity during the first quarter of 2011 than what the market saw in the 4th quarter of 2010. ”Small business is still holding on to what they have with emerging signs of growth, but with great hesitancy,” says Pugh.
In discussions with other commercial real estate brokers and appraisers, they generally agree with Pugh that the market is more active, but remains soft.
In this broker’s recent search for space under 2,000 square feet, the effective asking price for Class A & B lease space appears to range between $18.50 and $30.00 per square foot. Interestingly with the large quantity of available space, some landlords appear to want to hold reasonably firm to their higher numbers rather than fill vacant space. The question is how long with that last?