Office Market Recovery Advancing Says CoStar Report

CoStar Group's 2010 Third Quarter Office Review and Outlook was released this week, confirming that the office market recovery is underway. CoStar's research shows that the recovery is still in its early stages and may not be abundantly evident in all US markets, but confirms that the 3rd quarter results in the office market posted positive net absorption for the second consecutive quarter.

"Leasing activity in the quarter was healthy and robust,"said Andrew Florance, CEO of CoStar Group in the company's webinar presentation. "We're now seeing the strongest leasing activity numbers we have seen since the peak of the market [in 2005 and 2006]." Hilights from some major markets follow:

New York: "What I am seeing in the office leasing market is smaller tenants getting lower renewal rents (dollars per square foot), taking less square feet be it renewed or tenants consolidating, and landlords doing more tenant improvements," said Adelaide Polsinelli, associate vice president investments for Marcus & Millichap. "Larger tenants are doing the same as smaller tenants except they are taking advantage of the lower rents and taking on more space in buildings where they want to stay for a longer time."

Boston: "The lifeblood of the Boston market is its knowledge-based sectors, and those innovative companies which by definition start small, then grow," said Mary Sullivan Kelly, senior vice president and chief research officer for Colliers Meredith & Grew. "I can tell you that anecdotally, we are seeing growth from a number of firms -- particularly small and mid-sized tech and life science firms, some increasing their space requirements marginally, some by 50% or more, and this is an encouraging sign."

Atlanta: "Today, while money may be cheap, credit (along with collateral) is nearly nonexistent. This leaves the tenant to face either paying for tenant improvements themselves or adjusting their business practices to fit an existing layout,"said Rob Hill, commercial brokerage sales and leasing with Hill Corporate Partners. "Paying for tenant improvements, from a practical standpoint, requires a longer term to justify (and depreciate) the expense. Unfortunately, in today's world, five years can easily see a company's whole business strategy change."

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