Metro Jackson’s office market recently awoke from a slumber that began early in the New Year, though downtown Jackson continued its years of lethargy, an office space survey by CBRE’s Jackson office found.
The CBRE report predicts metro Jackson’s office leasing rebound will extend through the rest of the year and into 2016. “Most U.S. markets are improving in 2015 as a result of steady activity from office-using companies,” The report says. “This information coincides with the Jackson MSA as local total vacancy rates should drop significantly in the remainder of 2015 and into 2016 as the national market improves.”
The Interstate 55 and County Line Road submarket led resurgence by contributing a positive net absorption of 24,105 square feet compared with a metro-wide positive net absorption of 1,519 square feet, CBRE said in its Marketview survey for the first six months of 2015.
Net absorption is equal to the amount occupied at the end of a period minus the amount occupied at the beginning of a period. The calculation includes space vacated during that same period as well as newly constructed space, CBRE notes.
The Interstate 55 and County Line Road submarket reached the half-year mark with a vacancy rate of 12.3 percent, helped by UnitedHealthcare’s 16,000 square foot expansion at 795 Woodland Parkway in the Woodlands Office Park.
Space absorption in Woodlands Office Park (vacancy 20 percent) and elsewhere along the Interstate 55 and County Line Road corridor should lead prospective tenants to look at surrounding submarkets to accommodate space requirements, CBRE’s Marketview reported.
Commercial broker John-Michael Holtman of Jackson’s Duckworth Realty attributed the declining vacancies in the Interstate 55 and County Line Road submarket to the draw of what he calls the Highland Village/Whole Foods “isolated pocket” within the submarket.
Along with the stretch of Highland Colony north of the Old Agency Road roundabout, class A space within the Whole Foods isolated pocket has drawn sizable interest from prospective tenants. “Clients want to be in them,” Holtman said, attributing the draw to the pocket’s proximity to the rest of the metro area.
“It is right in the middle of everything.”
The pocket includes Duckworth Realty’s 120,000-square-foot One Eastover Center scheduled for completion at the District at Eastover by the end of the year. Law firm Baker Donelson will be the main tenant but two full floors are available for leasing, Holtman said.
The CBRE puts average lease rates for the Interstate-55 & County Line Road submarket at $18.03 a square foot, the second highest in the metro area. Highest lease rates belong to Highland Colony at $22.80 a square-foot.
Highland Colony ended the first six months of 2015 with a vacancy of 12.2 percent, CBRE reports. That low vacancy has been helped by increased leasing at 200 Renaissance at Colony Park, one of three multi-story office buildings that opened late in the last decade.
Remove Sorrento Office Park’s 95,000 square feet of empty space and Highland Colony’s vacancy rate drops to 6.8 percent, making it the tightest submarket, said Grant Ridgway, a senior associate in CBRE’s Jackson office.
The Sorrento vacancies and the departure of Universal Health Care Group from 5,000 square feet contributed to a negative absorption of 5,333 square feet. Despite that, the CBRE report said, “this submarket remains one of the lowest vacancy rates and highest rental rates of the market.”
Reversing Highland Colony absorption to positive would boost the Central Business District’s tenant prospects, according to Ridgway. “No doubt about it,” he said. “If there is not a lot of space up there, they are going to have to look at the other submarkets.”
The CBD closed the first half of this year with negative absorption of 13,419 square feet, a result of Parkway Properties completing its move to Orlando and leaving behind 16,653 square feet at One Jackson Place.
An offset came with State Street Group’s leasing of 5,328 square feet at 200 N. Congress St., CBRE reports.
Still downtown Jackson ended the half year with a vacancy of 32.6 percent, the metro area’s highest, totaling 944,881 square feet. Its asking lease rate of $16.44 a square foot puts it in the middle of the submarket pack.
Meanwhile, the CBD submarket continued a multi-year wait for conversion of vacant office buildings to residential and mixed use. Reclassifying these buildings to multi-family will significantly lower the vacancy rate of the entire metro market, CBRE says.
Part of the delay in CBD conversions can be blamed on the Legislature’s failure to renew historic tax credits. The credits can’t be renewed until the 2016 session and would not go into effect until July 1 of next year.
Removing the empty 340,000 square-foot Landmark from the CBD vacancy picture, lowers the vacancy to 24.5, according to CBRE’s Ridgway.
The Landmark has new owners who say they will soon convert the glass-enclosed, multi-story building to a mix of retail, office space and apartments.
Ridgway is upbeat about downtown, noting leases totaling 40,000 to 45,000 square feet have been signed since June 1. “There are good things happening,” he said. “I am obnoxiously optimistic about it.”
Tenants can pay 30 percent less downtown for space “just as nice as in the suburbs,” he said. For instance, Ridgway added, tenants can pay $23.50-to-$24.50 a square foot for space in downtown’s Pinnacle that would run $28.50 on Colony Parkway.
Ridgway said CBRE is seeing a lot of 2,000 to 3,000 square-foot users returning to downtown.
Those small users, especially ones that are part of the Creative Economy, offer substantial hope for downtown landlords, according to Duckworth Realty’s Holtman.
The repositioning of downtown’s older class B and C buildings does not “all have to be apartment conversions” and can be redone to accommodate Creative Economy users, Holtman said.
It’s a mistake for the CBD to continue to compete with “the same strategy that highly desirable submarkets use,” he added. “The thing we need to do is continue to grow and create the Creative Economy.”
Freelancers, contract workers, entrepreneurs and small business owners are predicted to total 65 million people, or 40 percent of the U.S. workforce, by 2020, Holtman said, citing figures compiled by the Bureau of Labor Statistics.
Poor job growth has held back downtown and the rest of the metro market, Holtman noted. Without quarter-over-quarter job growth tenants tend to move around, he added.
Metro Jackson had a 5.7 percent joblessness rate in June, compared with 6.6 percent for the rest of the state. The metro rate is slightly higher than June’s national rate of 5.3 percent.
(This story has been corrected to note the “isolated pocket” for the Interstate 55 and County Line Road submarket referred to by Duckworth Realty’s John-Michael Holtman is in a two-mile radius of Highland Village/Whole Foods.)
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