Pittsburgh
While economists debated the financial health of the country, the office real estate sector in Pittsburgh remained healthy and busy. Nearly a half million square feet of absorption occurred during the first quarter, vacancy declined by 80 basis points and class A asking rental rates pushed upward by 18 cents per square foot over year-end 2007.
In the past five quarters the central business district has experienced a surge in activity, predominately among large users. As H.J. Heinz Co. settled into its new 95,000-square-foot home at One PPG Place and the University of Pittsburgh Medical Center finalized construction of 185,000 square feet of its new home at U.S. Steel Tower, other large users,including Siemens Power Generation Inc. and Equitable Resources Inc.,analyzed downtown opportunities.
Class A asking rental rates moved substantially upward, increasing to $2.08 per square foot
The 595,000-square-foot Union Trust building sold during the quarter to Los Angeles-based Mika Realty for $24.1 million.
Options narrowed for the fifth quarter in a row in the north submarket as minimal speculative construction and increased demand resulted in vacancy decreasing by 560 basis points year-over-year. During the first quarter, a 48,500-square-foot office/flex building in Cranberry Business Park began construction joining the development of O’Hara Commons. Together, the buildings will provide a total of 98,500 square feet.
In the east submarket, the University of Pittsburgh Medical Center purchased the 12-acre Palace Inn building from Cozza Enterprises for $19 million and plans to
renovate the former hotel into an adult out-
patient facility.
Lack of space in the Oakland and south submarkets presents a challenge to tenants. Plans for a development were announced by DOC-Economou in the Baum Boulevard Corridor of the Oakland Submarket. The $230 million mixed-use project is in proximity to UPMC Shadyside Hospital and the Hillman Cancer Center and will include 150 homes, 400,000 square feet of retail space and 300,000 square feet of office space.
In the south submarket, Horizon Properties began construction of 5000 Town Center Way in Southpointe II. The 120,000-square-foot speculative building is schedule for completion in 2009.
Also under construction in Southpointe II is a 75,000-square-foot building that will primarily be leased by Consol Coal and will complement their 380,000-square-foot build-to-suit.
Atlanta
The Metro Atlanta office market exhibited reduced leasing activity during the first quarter,not an unexpected result of economic forces impacting space requirements for tenants in the marketplace. The lingering drought, stagnating housing market, tightening lending standards and increasing cost of energy have placed downward pressure on many sectors of the economy.
However, Metro Atlanta’s fundamentals remain strong and have counteracted some of the negative effects of an economy in flux with continued increases in employment, personal income growth and strong consumer spending. Additionally, Metro Atlanta ranked second in the nation in population growth in the past year and added approximately 55,000 jobs during the same period. The positive job growth grew office space demand.
The first quarter saw approximately 280,000 square feet worth of net occupancy losses. The majority of the loss was experienced in the central perimeter and midtown submarkets and to a lesser degree in Buckhead.
Homebanc Mortgage filed bankruptcy in August and recently vacated its 160,000- square-foot space at 2002 Perimeter Summit. Additionally, central perimeter took a direct blow when AT & T; Wireless announced it would move out of its 300,000 square foot space at Glenridge Highlands Two and relocate to Lenox Park in Buckhead.
The majority of the recently emptied space has yet to be backfilled, but there is light at the end of the tunnel in the form of prospects rumored to be in the hunt for new space. Among them are software giant Oracle Corp., which is said to be looking for 100,000 square feet of space, and AutoTrader.com, which could take up to 500,000 square feet. Additionally, Reznick Group recently helped reduce vacancy at 2002 Perimeter Summit by expanding into an additional 25,000 square feet.
Leasing activity has leveled off, but it could be worse. The race to secure tenancy for new office towers in the Buckhead and midtown submarkets will likely benefit tenants in the form of free rent. Buckhead has nearly 2 million square feet under construction.
San Antonio
San Antonio is fortunate enough to have been shielded from major market disruptions; the office leasing market has however experienced its first quarter of negative absorption, totaling 60,071 square feet, since 2003.
Growth has slowed due to concerns on a wider national level. In the past few years, San Antonio’s economy, job growth and low-cost business environment have enticed companies to expand and relocate to the market. New office development projects have sprung up around the city to lure businesses.
Despite the negative absorption recorded in the first quarter, it is a relatively small percentage of the 24.5 million total square feet of office space and the vacancy increase is a direct result of buildings being added to the market. In 2007, 766,335 square feet of office space was delivered to the San Antonio market with space currently under construction standing at 1.7 million square feet, an astounding 124% increase. By class: 786,123 square feet will be delivered as class A space and 935,461 square feet as class B space, the largest concentration of which is in the Northwest submarket.
The San Antonio office market is exhibiting signs that there is positive absorption of new space; however available sublease space has increased due to some small businesses downsizing or vacating.
During the first quarter, San Antonio’s overall vacancy increased slightly by 60 basis points to 12.5%, which mirrors the small amount of negative absorption recorded during the survey period.
The only significant vacancy changes in the San Antonio’s office leasing market occurred in the South submarket which increased by 150 basis points to 3.9%.
Office condominiums, a popular building concept that has taken foot in larger metropolitan markets across the U.S. has become popular in the San Antonio area and may be a small but significant shift in the overall marketplace.
During the first quarter of 2008, overall full-service asking rents increased for multitenant office space across the board, rising to $1.71, which marks another record high for citywide asking rents. Class A full-service asking rents climbed by 2.3% to $2, with the largest hike in rents occurring in the northwest submarket.
Data and analysis by Grubb & Ellis Co.
