The office market is still healthier downtown than in the suburbs, based on vacancy rates through the first half of the year, but the suburban market is closing the gap as tenants soak up space at a faster pace.
A survey of statistics released by four brokerages showed downtown and the suburbs going in opposite directions. The contrast was the sharpest in numbers released by Cassidy Turley, which showed the suburban market growing by 247,000 square feet while downtown contracted by 68,000 square feet in the first half of the year.
The only other submarket with negative absorption was the west side, which contracted by almost 30,000 square feet, according to Cassidy Turley’s numbers.
Cassidy Turley said the downtown vacancy rate at mid-year was 18.3 percent, while CBRE showed the rate at 17.9 percent. Both rates represented increases over the previous quarter, but downtown vacancy was still lower than in the suburbs, where Cassidy Turley listed the vacancy rate at 20 percent and CBRE 21 percent.
Improvement in the suburbs was fueled by the usual suspects, the Keystone and North Meridian submarkets. The Keystone submarket’s vacancy rate stands at 17.8 percent, a dramatic drop from 22.5 percent a year ago, according to Summit Realty Group and Cushman & Wakefield. The Meridian rate is down to 19.7 percent vs. 21 percent a year ago.
The Keystone submarket’s numbers were positively affected by State Farm Insurance moving into 88,000 square feet at 9200 Keystone Crossing. Other big suburban leases for the quarter involved WebMD, which committed to 37,000 square feet at Precedent Park, and Guggenheim Insurance, which leased 21,000 square feet at Meridian Corporate Plaza One.
Not all of the downtown office market news was bad. CBRE reported that the amount of space available for sublease downtown fell from 97,000 square feet to 36,000, thanks in large part to the state Department of Education and Finish Master leasing large chunks of sublease space at the PNC Center.
The downtown numbers should improve in the third quarter when those tenants and others occupy their space, CBRE said.
The generally stagnant downtown market has caused rents to flatline. CBRE said the average asking rent across all downtown classes of office space is $18.33 a square foot and hasn’t changed much over last 10 quarters.
In the market as a whole, law firms, tech firms and financial services companies are the most active consumers of space, according to Jones Lang LaSalle’s second-quarter office report.
The brokerage said the biggest prospective tenants in the market now are Interactive Intelligence, which is shopping for 225,000 square feet of space, and the State Department of Health, which is in the market for 150,000 square feet. JLL said the law firm of Bingham Greenebaum Doll is looking for 100,000 square feet downtown.