JACKSON — The Capital City’s prime office space may seem high, but compared to similar regional cities and larger metropolitan areas, it’s a bargain.
“The Jackson market for Class A space would certainly be comparable to Little Rock or Birmingham,” said Jim Ingram, president of Parkway Realty Services in Jackson. “One Jackson Place is still in the $20 range. The SunCom building is still in the $18 range, and the SkyTel Centre building is $17 to $18. I would put that up against the smaller markets any day.”
EastGroup recently completed its 2001 Office Space Guide Report, which put the overall occupancy rate at 92% in Jackson, which has a MSA (Metropolitan Statistical Area) population of 440,801, according to the U.S. Census Bureau 2000 Report.
“An 8% vacancy is very healthy, 2% better than the national average,” Ingram said.
Metro Jackson’s suburbs account for a total inventory of roughly two million square feet of Class A owner occupied and leased property. Jackson’s Central Business District (CBD) has 1.7 million square feet of prime office space, said Richard Ridgway, president of Coldwell Banker Commercial Ridgway Lane & Associates in Jackson.
“Because of the stability of the market, we’ve not had a great fluctuation of rates as the economy has softened,” he said. “From an investment cycle this is a mild swing. For the highly leveraged person, it certainly negatively impacts yield, but it doesn’t make him insecure because the banks have required sufficient equity.”
That’s good news for investors. Soon after Congress passed the 1986 Tax Reform Act, which raised the capital gains tax rate from 20% to 28%, construction of commercial real estate came to a standstill while investors looked elsewhere for tax shelters. Since then, leasing rates have slowly climbed and new office construction has steadily increased in the last decade, only recently leveling off.
“There has not been as much new construction in Jackson lately,” Ingram said. “Last year, new construction all but stopped. Every year since 1997, Jackson has had approximately 200,000 to 300,000 square feet of new construction. Not a drastically high number, but it is for a market that only had the absorption of 179,000 square feet for the year ending July 30, 2001. I’ll put that up against several other markets across the Southeast.”
Atlanta, Austin, Denver, Houston, Los Angeles, Miami, Pittsburgh, San Diego and Tampa reported positive net absorption in the first half of 2001. Even so, new construction starts have been put on hold in Atlanta, and most projects won’t be delivered until 2002, giving the market time to absorb its current vacancies.
During the same reporting period, negative net absorption, primarily attributed to substantial sublease activity, was reported in Boston, Chicago, Dallas, Long Island, New York, Philadelphia, Phoenix, Portland, Richmond, San Francisco, San Jose, Seattle, St. Louis and Washington, D.C.
In Baton Rouge, which has a MSA population of 602,894, Class A spaces lease for $16.50 to $19.50 a square foot, said Ben Johnson, sales manager of the commercial division of Latter & Blum Inc. Realtors in Baton Rouge.
“Without a doubt, there’s a tremendous slowdown going on in the market and it’s pretty much across the board,” Johnson said. “It’s mostly because of mergers, layoffs and a slowing of the national economy.”
Baton Rouge has roughly 2.39 million square feet of Class A inventory, with a 94% occupancy rate, Johnson said.
“We have some construction going on, including a 200,000-square-foot build to suit, but it’s 100% committed,” he said. “There’s a 100,000-square-foot building just completed that is 50% occupied by Hancock Bank.”
The Birmingham market, which has a MSA population of 921,106, has about 11 million square feet of Class A space, with an occupancy rate of 91% downtown, 93% midtown and 93% in the suburbs, said Randy Thomas, director of office leasing for Bayer Properties, Inc. of Birmingham.
“The 459/280 corridor, densely populated with professionals, is running as low as $17 on sublease space and the average is $20 a square foot,” Thomas said. “When you head a little further out to a 600,000-square-foot Class A park, it gets to around $23.50. That’s the high end. Downtown is a little less at $18 to $20 a square foot.”
Top-of-the-line office space in Little Rock, with a MSA of 583,845, commands $15 to $18 a square foot for Class A office space, said Kim Pruitt, director of economic development for Little Rock Regional Chamber of Commerce.
“Inquiries have picked up in the last six weeks, but it had slowed down until that point,” Pruitt said. “During the past year, we’ve been affected by acquisitions and mergers resulting in less demand for space so there hasn’t been much growth. We have a new 12-story office building under construction downtown that is leased up, but there are two other major buildings under construction which together will add significantly to our available space.”
Ingram said Parkway owned a suburban Class A building in Little Rock that leased for $17.50 to $18 a square foot.
“Little Rock’s CBD (Central Business District) was much worse than Little Rock’s west market,” he said. “Jackson is holding up quite well.”
In Atlanta, prime office space rents for $24 to $26 per square foot in the CBD or Buckhead.
Average Class A rents in Chicago are $36 per square foot, with asking rents of $40 per square foot in the River North submarket.
“Even though market conditions overall have softened in Chicago, Class A space has not,” said Gordon MacAdam of Gordon MacAdam Real Estate Services in Chicago.
Pricier still is prime office space in Fairfax County, Va., where the asking price is $25 to $46 a square foot and the occupancy rate is 95.1%. Of the county’s 92.7 million square feet of office space, about 60.6 million, or 65%, is considered Class A.
“We have seen a decline during the recent economic slowdown, but it hasn’t been precipitous and now we believe we will see slow, steady growth in the real estate market here,” said Gerald L. Gordon, president and CEO of the Fairfax County Economic Development Authority.
According to Steven Fuller, an economist at George Mason University, the county gained almost 36,000 jobs in the 12 months between June 2000 and June 2001. More than half (51%) of the residents that work in Fairfax County also live there. Only 18% of the county’s residents cross the river to work in Washington, D.C.
In New York, Manhattan’s market average for Class A space is nearly $60 a square foot. Select buildings in Times Square, which includes the former Garment District, command more than $100 per square foot.
Markets of all sizes in the U.S. are reporting increased sublease availability of prime office space, and nearly every business center has been affected, primarily because of the implosion of the high-tech sector.
In Chicago, sublease space availability recently reached a record 3.9 million square feet.
When available sublease space is factored into Fairfax County, Va.’s available Class A space, the occupancy rate drops to 90.5%.
“Almost all of the businesses that have vacated are technology companies, most particularly telecommunications companies,” said Gordon.
Ingram said the telecommunications industry did not have the boom for Jackson that had been projected.
“At one time, we engaged a telecommunications study and there was a staggering number of new telecommunication upstart companies in Jackson and those obviously will not pan out as we hoped,” he said.
Phillip Carpenter, president of Carpenter Prope
in Jackson said Mississippi’s favorable climate for lawsuits with hefty jury awards has prompted several insurance companies to move out of state.
“Insurance companies certainly don’t have the presence here that they had 10 years ag