Eric Simonds, CBRE-Albany“How’s the office market?” This is a question we as commercial real estate professionals hear frequently. That question was the theme of a recent presentation I gave to over 180 Capital Region business leaders and professionals a couple of weeks ago and I’ll share a few thoughts on the subject in this article.
The major themes of the Capital Region office market are renewals, relocations, and a mixed bag of both downsizing and expansions. Our market closely followed the 4th quarter 2015 national office trends. The overall vacancy rate of 13.4% mirrors the national 13.3% rate and the Eastern U.S. markets rate of 13.1%. Although there was a slight increase from the mid-2015 vacancy rate of 12.7%, our vacancy rate at year-end 2015 is essentially unchanged from the 2014 year-end rate of 13.5%.
In reversing the post recession trends of the past six years, the Capital Region’s central business districts have displayed strength over the past four quarters with all five central business districts showing year-over-year improvement. Saratoga, Troy, and Schenectady lead the way with single digit vacancy rates whereas the Glens Falls and Albany central business districts experienced modest improvements, 15.3% and 19.8% respectively. However, the suburban office markets have slowed in the past year with the overall vacancy rate rising from 10.9% to 13.1% during the same 12-month period.
I believe the Capital Region is poised for further growth. Many consider our market to be a tertiary market and, as such, we tend to follow the national office market trends. If this holds true over the next 12 to 18 months, then there is much to be optimistic about.
Consider these national headlines from December 2015:
Employment Gains Drive Sustained Demand for Office Space
Annual Net Absorption Reached the Highest Level Since 2006
Net Absorption Outpaces New Supply for the 15th Consecutive Quarter
Vacancy Rate Falls to Eight-Year Low
Asking Rent Growth Exceeds 5% for the First Time Since 2008
While we most likely will not experience the dramatic gains that the national office market posted, we should see continued improvement if history is any indication.
We are still in a “tenant’s market,” meaning that available supply exceeds demand. The average-to-medium-sized office user in the Capital Region (3,000-10,000 s/f) will find that in most submarkets they will have a plethora of options when looking for office space. And when there are multiple spaces available, competition among the landlords for these tenants heats up. We’ve been very successful in obtaining favorable lease terms for our tenant rep. clients over the past several years, including rent abatement, relocation allowances, as well as options to terminate, expand, and contract.
Reflecting on 2015, while also looking forward to the remainder of 2016, we see continued optimism in our local office market. There are opportunities for tenants and landlords alike. Conditions will continue to improve as we follow the bigger picture of the national office market.
Eric Simonds, CCIM is an associate broker at CBRE-Albany, Albany, N.Y.
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