Vacancies in Metro Jackson’s office market dropped by 1.9 percent last year as the Central Business District and other sub-markets achieved a net absorption of 129,612 square feet of previously vacant space, the CB Richard Ellis Jackson office reports.
The increased leasing brought the market-wide vacancy rate to 21.4 percent, according to the CBRE Office MarketView survey, which put the total amount of unleased space at about 1.6 million square feet.
The Highland Colony Parkway/Madison submarket ended with the second lowest vacancy rate, just slightly above the I-20 and I-220 submarket.
However, Highland Colony had the highest asking-lease rates at $22.79. The I-55/County Line Road submarket came closest to Highland Colony on the leasing-rate side at $18.03 a square foot. The I-20 and I-220 submarket, whose inventory includes the southern end of Highland Colony Parkway, closed the year with the lowest lease-asking rates at an average of $14.05 a square foot.
It also had the distinction as the only metro submarket to have increased vacancy. It ended the year with vacancies up 2.9 percentage points, an increase the survey attributed to the Postal Service vacating 21,600 square feet at the 1461 Lakeover building. The submarket’s total vacancy for 2014 was 11.2 percent, the survey reported.
The I-20 and I-220 submarket is a new entry to the survey, which the CBRE Jackson, office says provides a more accurate depiction of the north Jackson metropolitan statistical area.
Jackson’s Central Business District accounts for 925,278 square feet of available space, by far the largest of all the submarkets. It ended 2014 with a positive absorption of 57,309 square feet, a leasing volume that lowered the CDB’s vacancy rate year-over-year from 35.1 percent to 32 percent.
The purchase of the 366,000-square-foot Landmark Center, 175 E. Capitol St., by an investment group led by Israeli lawyer Zev Yochelman took 50,000 square feet of space from the market when the new owners converted the ground floor to vacant retail space. “The Landmark Center also currently has the largest contiguous vacancy” in the metro market, the survey found.
For downtown and the other submarkets, the Office MarketView report tracks buildings on the market that are Class A and B, and greater than 10,000 square feet, said Richard Ridgway, senior VP for brokerage services in CBRE’s Jackson office.
Downtown’s Class A buildings – the Hertz Properties’ Pinnacle and One Jackson Place — are 81 percent full, Ridgway said, while acknowledging that “what is and is not an ‘A building’ is somewhat subjective.”
Lease rates in the CBD closed the year at an average asking rent of $16.44 a square foot.
Just how much vacancy does the Central Business District really have?
Ben Allen, president of Downtown Jackson Partners, a public-private entity created to enhance and promote the district, has long insisted that vacant former office buildings waiting to be converted to multi-family residential should be excluded from vacancy calculations of the district’s 3 million square feet of office space. Ridgway said CBRE agrees with Allen that “if and when” these conversions occur, they would substantially impact the downtown vacancy percentages.
But until the conversions happen, the buildings are vacant for office-space survey purposes, Ridgway said.
“There are several buildings that are set to be converted to multifamily and have not been removed from our data set yet, simply because the building is still being advertised ‘for lease’ as an available office space,” he added.
John Michael Holtmann, vice president of brokerage at Jackson’s Duckworth Realty, said the repurposing of the buildings to multifamily “is going to help the overall office market” by cutting down both supply and vacancy rates. Patience will be important here, Holtmann said.
“It is really looking at it from a long-term perspective. They are spending a lot more money converting to multifamily than keeping it office space.”
Lakeland Drive submarket landlords saw vacancy rates drop from 22.7 percent in 2013 to 19.4 percent in 2014.
“This is the largest drop in vacancy for all of the Jackson submarkets,” the CBRE report noted, and added that significant absorption on Lakeland Drive occurred with Koch Foods leasing 13,000 square feet and Shapiro and Massey about 6,000 feet.
However, the submarket lost a tenant of 7,000 square feet when Utility Management Corp. moved to Regions Plaza in the Central Business District.
In the I-55/County Line Road submarket, a pair of leases totaling more than 24,000 square feet pulled down vacancy rates. Medical Transportation Management leased about 12,000 square feet at 6361 I-55 and the Mississippi Real Estate Commission took about 12,500 square feet at 4780 I-55. The submarket had a positive absorption of 20,500, the survey reported.
Just a few years ago Highland Colony Parkway’s Renaissance campus had around 80 percent vacancy at its 130 floor, 324,000 square-foot 200 Renaissance building. Demand has dropped space available for lease there to around 8 percent, or about 12,600 square feet, said leasing agent Michelle Burford, who represents the H.C. Bailey Co., developers of the Renaissance (74 acres) and Concourse (73.5 acres) campuses.
Burford said a big chunk of 200 Renaissance has been set aside for the expansion of the Butler Snow law firm.
Other than the empty space at 200 Renaissance, “Everything we have is actually 100 percent leased,” Burford said, referring to both office campuses.
Buildings include 100, 200 and 300 Renaissance and 100 200 and 300 Concourse.
Burford said H.C. Bailey expects to sustain its high occupancy rates at the two campuses and indicated the company is working on yet-to-be-announced new product in the Colony Park area.
Duckworth Realty’s Holtmann agreed that office properties north off Old Agency Road on Highland Colony are an attractive draw. “That is a very tight submarket right now,” he said. “I recently represented a tenant in that submarket. Rates are really holding firm.”
Tightening is also occurring in the corridor along I-55 from Meadow Brook Road to Northside Drive. “A lot of the office tenants don’t want to go north as far as County Line Road,” Holtmann said.
Duckworth Realty is seeing leasing activity picking up across all Metro Jackson’s submarkets, he added. “We are busier now on the leasing side than we have been in probably a year.”
Meanwhile, the advantage tenants have had in negotiating lease rates is diminishing, CBRE Jackson’s Ridgway said in an email. “In the past several years, tenants have had the upper edge due to the surplus of available space on the market, but we are beginning to see less and less incentives offered by landlords which we believe is reflective of the market correcting itself.”