Downtown Jackson’s office vacancy rate will head toward 40 percent with the shutdown of the Landmark Center once master tenant AT&T vacates at the end of the year, says John Barton, a Parkway Properties senior vice president and senior asset manager who participated in the Parkway’s quarterly office market surveys until the company ceased doing them last earlier this year.
An empty Landmark will add 350,000 square feet of vacant space to downtown’s inventory of about 3.2 million square feet, an increase of about 10 percent in the Central Business District vacancy rate. “We’re looking at 38 percent to 40 percent” vacancy, Barton said, conceding that the higher vacancy could further depress CBD lease rates.
“It’s the largest of any that I’m aware of” other than Detroit, he added.
Ben Allen, president of the public-private Downtown Jackson Partners, argues that the 38-40 percent rate is misleading because so much of the Central Business District’s office product is awaiting a conversion opportunity and owners aren’t marketing the buildings for office use.
Barton said he does not disagree with Allen but the empty space is still figured into the overall vacancy. “There are a lot of redevelopment opportunities contained within that vacancy rate,” he conceded.
Parkway Properties’s quarterly surveys for the last three or so years have put the CBD vacancy rate in the 26 percent to 28 percent range.
Though Parkway has moved its headquarters to Orlando, Fla., it still tracks the Jackson office market, according to Barton.
That tracking shows little turnover in tenant leases coming up, he said. “Most of the people downtown, particularly the law firms, engaged in what is known as blend-and-extend transactions. They shored up the terms of their leases,” a move that brought them incentives and reductions in rental rates.
Landmark’s loss of AT&T is the 111 Capitol building’s gain. AT&T will occupy about 40,000 square feet at the building Parkway sold to the Hertz Group last month for $8.3 million.
The 111 Capitol building’s 187,000-square-feet were 83.1 percent occupied at the close of the sale, Parkway says.
AT&T’s predecessor, BellSouth, moved into the Landmark, 175 East Capitol Street, about 30 years ago. It did not make sense to renew the lease, said AT&T spokeswoman Sue Sperry. “After undergoing management restructures, we no longer have a need for all that space in the Landmark Center,” she said.
Barton said it’s fortunate AT&T is remaining downtown. Adding another 40,000 square feet to the vacancy rate would have made a bleak picture even bleaker, he noted.
Parkway received approximately $6.3 million in net proceeds.