Unoccupied space just up at 1.8 million square feet compared to 1.78 million square feet unoccupied in the previous quarter
Metro Jackson’s office market ended the first quarter in much the same fashion as the fourth quarter, with the submarkets of Lakeland Drive and Interstate-55/County Line Road showing slight occupancy increases and the Central Business District and Colony Park slight decreases in occupancies.
In all, metro Jackson’s office market ended the quarter with 1.8 million square feet of vacant space after ending the previous quarter with 1.78 million square feet unoccupied.
Central Business District occupancy dropped from 74.9 percent to 73.59 percent while filled space at Colony Park, home to the Renaissance office complex, decreased from 81.76 percent to 81.66, reports Parkway Properties in its first quarter occupancy survey.
Together, the CBD and Colony Park account for 65 percent of the metro market, at 35.4 percent for the CBD and 29.6percent for Colony Park. Lakeland Drive (15 percent) and I-55/County Line Road (20 percent) account for 35 percent of the metro market.
Lakeland Drive occupancies rose to 83.81 percent in 1Q from 83.53 percent in the previous quarter, though asking rents declined from $16.92 a square-foot to $16.80 a square-foot, the survey found.
The 1-55/County Line Road corridor rose in both occupancy and asking rents, going from 84.86 percent filled to 85.02 percent and an increase in asking rents from $17.90 a square foot to $17.96.
The CBD and Colony Park also saw dips in asking rents. Downtown space went from $17.43 a square foot to $17.41 while Colony Park dropped from $20.73 a square foot to $20.70.
In the CBD, the relocation of the U.S. Attorney’s Office from One Jackson Place to the new Federal Courthouse brought up the vacancy numbers by about 31,000 square feet. “That is what is driving the negative absorption in the CBD,” said John Barton, senior vice president and senior asset manager for Parkway Properties, a national property management firm that represents the real estate investment trust, owner of One Jackson Place.
One Jackson will refill 27,000 square feet of its empty space with the relocation of the Balch & Bingham law firm from 401 East Capitol Street. Next quarter, The Shops at Jackson Place, situated in the parking garage of One Jackson, will show 43,000 square feet of increased vacancy with the departure of the U.S. Bankruptcy Court to the Federal Courthouse.
That increased vacancy will be more than offset next quarter by including an additional 50,000-plus square feet in the occupancy column with the arrival in the neighboring Regions Plaza of the Mississippi State Personnel Board and Department of Finance and Administration’s Management and Reporting System.
Barton said the level of inquiries and pace of negotiations indicate the entire Jackson office market will see increased leasing by midyear and beyond.
Market-wide, law firms, financial services companies and insurance firms are moving into expansion mode and feel some pressure to lease additional space now rather than later when rates are likely to go up, the Parkway executive said.
Also creating momentum market-wide: companies involved in the expansion of the nation’s health insurance and healthcare system, according to Barton. Some are already here and looking for more room while others are from out-of-town and need a presence here, he said.
“It’s precipitating a lot of growth,” when combined with the expansionist thinking of companies already here, Barton added. “I think the second and third quarters are going to bear some fruit as far as signed leases.”
The wishy-washiness of last year is giving way to decisiveness, he said. “This is because they have waited around and their leases are closer to expiration.”
That decision-making has sped up is also a barometer of people’s perspective on how the economy is doing. “They are actually going to make decisions relatively quickly,” in, say, three to six months.
Also, noted Barton, the budgeting decisions on space expansions made in the second and third quarters last year will begin showing up in occupancy at midyear and afterward.
He said landlords expect longer leases of seven to 10 years from tenants who are doing significant build-outs. Tenants working under government contracts aren’t likely to sign lengthy leases.
Barton said he and his colleagues have stayed busy on the deal-making side and he expects this to translate into real numbers in the months ahead.
“The worker bees are all working on getting people in,” he said. “That’s the way it use to be.”
Commercial real estate professional Hugh Johnson of Jackson’s J. Walter Michel Agency said he is plenty busy. The metro market’s 1.8 million square feet of empty space is why, he added. “We need some serious absorption.”
The I-55/County Line Road and Lakeland Drive markets give him more flexibility for smaller-use tenants than do the CBD and Colony Park. “In Flowood and Ridgeland you’ve got some smaller-type buildings. A bunch of 5,000-square-footers set up for three or so tenants. Those property owners (downtown) are less likely to carve that out.”
They’re asking for two- to three-year leases and taking the space “pretty much as it is,” Johnson said.
Rates in these buildings are $10 to $11 a square foot, and include the tenant paying utilities and janitorial costs, he noted.
Landlords in some instances are giving free rents, as well, according to Johnson. “I did one the other day on a 50-month lease in Ridgeland; the first two months were free, the 18th month was free and the 36th month was free,” he said, and added having the space on a second floor near the elevator forced him to settle for $9.50 a square foot.
Johnson said he knows where to put much of the blame for the increased leverage of tenants — the Mississippi Gulf Opportunity Zone, a post-Katrina effort by which the federal government provided hugely attractive incentives for rebuilding and new development.
“We overbuilt. Now we’re having to backfill,” he said.
A typical scenario: an occupant of a 5,000-square-foot space downtown is enticed by GO Zone incentives to build a 10,000-square-foot building of which it will occupy 7,500 square feet. The result is a net of 7,500 square feet of empty space, the 5,000 downtown and the 2,500 empty in the new building.
“I hope the GO Zone has come and gone,” Johnson said.
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