MINNEAPOLIS
The office market in the Twin Cities reported subtle positive changes during the third quarter.
Overall the office market has completed the third quarter with nearly 344,000 square feet of absorption. The total absorption year-to-date is nearly one million square feet.
The overall vacancy rate has decreased from 15.2% during the second quarter to 14.8% during the third quarter.
Lease rates are pushing upward, though slightly. The suburban submarkets continue to command higher rental rates than the central business district office space. Class A office asking rates have increased by 1%, while class B has not significantly changed.
Overall office rates will most likely increase in the coming months. Prime office space on the upper floors will go for a premium.
Construction activity has increased slightly. Large office users moving to the Twin Cities or existing users significantly expanding will drive office projects. The price per square foot for office land has remained steady in 2007. However, construction costs have risen significantly this year. We are not likely to see a construction surge due to less money flowing into new development and higher borrowing costs.
BOSTON
The third quarter produced another round of rent increases and tenant occupancy expansion in the greater Boston office market. The healthy rate of growth for absorption and asking rents realized in this period however fell short of the blistering pace set over the past four quarters.
Third-quarter average class A asking rents rose to $3.26 per square foot, an increase of 8 cents, while the average quarterly increase in the past year has been 21 cents per square foot. Net absorption was 356,000 square feet in the third quarter, versus an average of 950,000 square feet per quarter during the previous year.
Class A figures in the Back Bay and downtown submarkets reached $4.79 and $4.96 per square foot, respectively, with tower rents in the two submarkets at parity. The suburbs produced positive net absorption in the quarter, with markets geographically closer to downtown experiencing greater expansion.
The investment market was more reserved in the third quarter due to the turmoil in the debt market, with just one tower property under agreement to sell in the downtown market. All told, there were 23 transactions of $5 million or greater in the third quarter.
CHICAGO
The turmoil in the financial markets made for a rough summer. Highly leveraged buyers felt the woes of the credit crunch, lenders tightened their lending standards and the Federal Reserve responded by cutting the federal funds rate by half a point to 4.75%. The markets are in a period of transition as participants are reassessing and repricing risk. The worst of the subprime mortgage crisis seems to be over,at least for the financial markets.
Job growth in the private sector has slowed, also impacted by subprime mortgage companies cutting jobs significantly,more than 1,000 jobs in the Chicago area alone. But overall job growth still looks positive for Illinois with 42,200 jobs added in the services sector this year.
The central business district office market performed well in the third quarter with 480,000 square feet of absorption reducing vacancy to 14.3%. The suburban submarkets, however, performed poorly bringing the vacancy rate up 40 basis points to 19.9%.
Analysis by Grubb & Ellis Co.
