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.