Office Tenants Benefit From Glut : Survey of Twelve Downtowns Sees Trend Continuing

It was a tenants’ market last year for downtown office space in most cities--including Los Angeles, San Francisco and New York--with decreasing rental rates and concessions granted to tenants, according to a survey of 12 major downtowns conducted by Colleen Rabin Associates, Beverly Hills.

Despite rental rate increases averaging 3% to 5% nationally, asking rents are lower now than they were three years ago in Denver, San Francisco, New York and Los Angeles, she said.

Generally, 1985 will continue to be a tenants’ market, with only slight increases in asking rents, and effective rents as much as 30% to 40% below asking rates in soft markets, Rabin said. Rent concessions take various forms, including 12 months free rent on a five-year lease, upgraded tenant improvements and paid moving expenses, she added.

The largest increases in the higher range downtown rents were experienced in Chicago, 25%; mid-town Manhattan, 15%; Washington, 13%, and Orange County, 11%, she added.

“Although absorption levels remained high, massive overbuilding continued in 1984, outpacing demand and causing rents to stabilize or decrease in some markets,� Rabin said. “These markets will take several years to work their way out of the oversupplied situations they are currently experiencing.�

OFFICE RENTAL RATE TRENDS IN MAJOR DOWNTOWN AREAS

Asking Rent Average Rental Rate Range Dec. 1981 Dec. 1982 Dec. 1983 Dec. 1984 Los Angeles $27 - $35 $24 - $32 $24 - $34 $28 - $34 Orange County* $21 - $25 $18 - $24 $18 - $27 $20 - $30 San Francisco $30 - $40 $30 - $40 $25 - $38 $26 - $35 Seattle $14 - $19 $14 - $19 $16 - $24 $17 - $25 Denver $22 - $32 $18 - $26 $18 - $26 $18 - $26 Houston $18 - $24 $14 - $24 $16 - $26 $16 - $26 Dallas $16 - $24 $17 - $25 $18 - $26 $19 - $28 Chicago $20 - $26 $20 - $22 $21 - $24 $21 - $30 Atlanta $14 - $25 $13 - $23 $16 - $26 $16 - $26 Washington, D.C. $24 - $28 $21 - $26 $18 - $32 $22 - $36 New York - Midtown $33 - $60 $30 - $60 $35 - $65 $33 - $75 New York - Downtown $30 - $45 $29 - $42 $28 - $45 $25 - $42 AVERAGE $22 - $32 $20 - $30 $21 - $33 $22 - $34

Note: Rent is for existing class A buildings and is quoted on a full-service basis, per rentable square foot. Rental rates are asking rates, not necessarily effective rents when concessions are considered. Rental ranges exclude extremes.

* Irvine/Newport Beach Airport Area.

Source: Coldwell Banker Commercial Real Estate Services; Colleen Rabin Associates, Beverly Hills.