Metro Jackson office tenants filled 50,824 more square feet than they vacated last year, a CBRE-Jackson survey of the second half of 2015 shows.
The positive net absorption trend included downtown Jackson, where tenants leased 24,768 more square feet than they gave up, CBRE’s Jackson office reported.
By contrast, the I-55/County Line Road submarket, which includes office buildings in the vicinity of Highland Village, closed last year with negative net absorption.
In doing the survey, the Jackson office of international commercial real estate firm CBRE analyzed leasing at 105 office properties in the submarkets of the Central Business District, Lakeland Drive, I-55/County Line Road, Highland Colony Parkway/Madison and I-20/I-220. All properties are class A or B and more than 10,000 square feet. The survey excluded owner-occupied buildings and buildings primarily used for medical or government purposes.
The Central Business District’s 24,768 square feet of positive absorption marked the largest net absorption gain of any of the submarkets. But the move into positive territory failed to dent a downtown vacancy rate of 31.1 percent, which represents 893,826 square feet of empty space.
The long-vacant Landmark Center at Capitol and Lamar streets accounts for 360,000 square-feet of the Central Business District’s total vacancy, said Grant Ridgway, senior associate in CBRE’s Jackson office.
“Take it out of the data set and it changes the numbers pretty quick,” Ridgway said. “All of a sudden it’s a 23 percent vacancy. And looking at that in comparison with the other submarkets you aren’t that far off.”
The Landmark is headed for conversion to mixed use, with an emphasis on residential apartments. But difficulties with financing and parking have slowed progress, according to Brian Estes of the Estes Group, which is working with owners of the downtown building that once headquartered BellSouth and later AT&T.
Even with the conversion, the Landmark will still have around 100,000 square feet of office space for lease, Estes said.
“Parking is the big issue,” he said, and noted Hertz Investment Group, downtown Jackson’s dominant office landlord, controls much of the parking around the Landmark. The California real estate investment company is not overly eager to help a potential office market rival with parking, Estes said.
The CBRE report put asking rents for the Central Business District at $16.35 a square-foot, a rate higher than the I-20/I-220 ($14.05) and Lakeland Drive ($16.14) submarkets but lower than I-55/County Line ($18.03) and Highland Colony ($23.01). Those rates combined rents charged in class A and B buildings.
In its year-end report, the Jackson office of Integra Realty Resources separated the class A and B, putting Class A rents in the Central Business District at $24 a square foot and Class B at $16.
Addressing the Lakeland Drive submarket, a survey area which extends from Interstate 55 to the Jackson city limits, CBRE said the submarket had the second-highest positive absorption, at 17,077 square feet. Notable transactions in the second half of 2015 included Travelers Insurance Co. relocating from River Oaks Place to 10 Canebreak, a 53,000 square-foot office building in Flowood. The Travelers move entailed a downsizing of 8,000 square feet.
Also in the last half of the year, the Lakeland Drive submarket’s Petit Bois Office Park gained 100 percent occupancy through leasing out a remaining 6,200 square feet.
Total vacancy along Lakeland Drive dipped from 21.4 percent in the first half of the year to 20 percent in the last half. Leasing rates hovered around $16.14 a square foot, according to CBRE.
CBRE’s survey found I-55/County Line closed 2015 with the least leasing activity among the submarkets. “There were fewer large transactions in H2 2015 in this submarket than in the past several quarters,” the survey report noted.
The vacancy rate climbed slightly from the first half of the year to the final half, going from 12.3 percent to 12.9 percent. Returning to the market were 6,900 square feet at the Woodlands Office Park and 2,500 square feet at the Atrium North office building.
“It is anticipated the I-55/County Line will have slow activity in 2016,” CBRE said.
The average asking lease rate stood at $18.03 a square foot, the firm said.
On County Line, said Ridgway, “more people are downsizing and moving out than leasing space.”
Blame some of the submarket’s negative absorption, he added, on a dearth of space for leasing. “If you have a submarket that is extremely tight… you have more opportunity for negative absorption,” Ridgway said.
The next survey report should show I-55 County Line moving toward positive absorption, with the soon-to-open One Eastover Center filling up. Tenants in the five-story, 120,000 square-foot office component of the District at Eastover are to include laws firm Baker Donelson and Cosmich Simmons & Brown.
BankPlus, meanwhile, will consolidate offices in the District’s central location that will be headquarters for its Jackson banking center, offering commercial lending, commercial real estate, private banking and other services.
Construction on the 67,000-square-foot BankPlus complex is expected to start this month. When completed in spring 2017, the bank will lease the top two floors of the three-story building for its full service operation; the ground floor will have 17,000 square feet of retail and restaurant space with frontage on Interstate 55.
Baker Donelson’s departure from nearby Meadowbrook Office Park opened up 85,000 square feet that is reported to be the University of Mississippi Medical Center’s top choice for its Integrated Physician Practice division.
UMMC is also on the hunt for a home for its telemedicine operations after a deal with Venyu Data Solutions to lease 16,000 square feet in a yet-to-be-built complex fell through in mid March. The complex was to go up next to Venyu’s new data center in the former McRae’s department store on Meadowbrook Road. “They will eventually land somewhere and take some vacancy off the market,” Estes of the Estes Group said.
The newly designated submarket of I-20/I-220 stretches from the lower end of Colony Parkway to the South Pointe Office Park in Clinton. It opened 2015 with vacancy of 11.4 percent but closed the year at 9.5 percent for a net positive absorption of 14,172 square feet, CBRE reported.
The Mississippi Department of Education leased about 38,082 square feet at South Pointe in the second half of the year, a move that brought the office park’s occupancy to 99.3 percent. Around the same time, about 9,800 square feet came onto the market in the 220 Business Park.
Highland Colony, a submarket that runs from approximately Old Agency Road to Madison, closed the year with vacancies of 12.1 percent, the lowest in Metro Jackson. The submarket leased 2,954 more square feet than it lost to tenant departures. “Looking forward, leasing is expected to increase into H1 2016,” CBRE’s report said.
Also, new construction is expected to begin this year on Highland Colony Parkway, the report said.
With the lowest vacancies come the highest lease rates, with Highland Colony submarket having average asking rents of $23.01 a square foot. The submarket opened 2015 with asking rents of $22.80.
Prospective office tenants needing 3,000 or more square feet are having a difficult time finding space for lease in the Highland Colony market, according to Estes.
What nearby space that is in that range that is available is south of Old Regency or south on Highland Colony Parkway, Estes said.
Ridgway expects more supply will eventually be available in the Highland Colony market. “I don’t think it’s done growing,” he said. “I think as it continues to fill up, you will see some new construction there.”
On the potential for rates to rise, Ridgeway said rates have stayed firm metro-wide, with landlords likely to gain a slight edge in the near future as the submarkets tighten. “Owners are not as desperate as they were five years ago, he said.
The exception, according to Estes, would be the Central Business District and north Jackson. In those locations, “You are probably giving more concessions than if you are a landlord on Highland Colony Parkway,” he said.
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