At $69/sq ft, San Francisco heads the table of rental rates for Class
A space in North American Central Business Districts published as part
of ONCOR International's Mid-Year2000 North American Office Market Report.
Boston is number two at $60 with the epicentre of the new digital economy,
Silicon Valley ($54) at three and the home (for now) of Microsoft and
Boeing, Seattle ($39) at five. Manhattan ($49.51) takes fourth place.
If you're after cheap space, try St Louis ($20), Memphis ($19.25) or cross
the border to Vancouver ($18.00) or even better still Edmonton ($12.00).
Unsurprisingly, despite the high rents, Seattle (1%), Silicon Valley (2.43%)
and San Francisco (2.59%) also top the lowest market vacancy rates table.
There's plenty of space to be found in Baltimore (18%), Milwaukee (17%)
and Dallas/Fort Worth (17%).
ONCOR predicts strong markets for the remainder of the year. First half
figures indicate that overall occupancy increased by 48.5m sq ft, down
just 11% from the whopping 54.5m sq ft recorded in the last half of 1999.
They report a slight, but perhaps meaningful shift in the class of space
being occupied. In 1999, 24% of the total space absorbed involved Class
"B" grade or lower space. The corresponding figure for the first
half of 2000 is 13.6%, which more likely reflects a diminishing supply
of "B" grade space than a shift in tenant preference for premium
quality buildings.
The logic behind this assessment relates to the type of tenant fueling
market activity. Cities throughout North America - particularly their
Central Business Districts - are growing fat on leases signed by technology
and dot-com companies. These companies prefer the airy, lofty environments
offered in many older Class "B" or lower structures. "It
is unquestionably a great time to own seasoned, well-located, spacious,
functional buildings that have, or can gain, high-speed computer access,"
says ONCOR.
The lingering danger is the volatility that occurs within these industry
sectors. Sudden shifts in consumer demand, fluctuations in the economy,
increased competition within the sectors themselves, and cash-flow squeezes
(already an issue with the dot-coms) could unsettle markets.
Richard Byatt
