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Monday, December 28, 2009

CRE: Office Space Update

by Calculated Risk on 12/28/2009 08:48:00 AM

The Square Feet Commercial Real Estate Blog has a post on a new lease signed in San Jose for 188 thousand square feet: (ht Eric)

  • 10-Year Term
  • September 1, 2010 commencement
  • 2-Years Free Rent
  • $1.90 NNN start (year 3), with $.10 annual bumps (CR update: Monthly rent)
  • $100 PSF Tenant Improvement dollars (over shell)
  • Right to cancel after 7 years
  • Talk about a low effective rent. Not only is the tenant getting two years free rent, but the tenant improvements are about 4 years of rent (the lease is triple net, so the tenant is also paying taxes, insurance and maintenance).

    And the tenant can cancel after 7 years ... the landlord is mostly just covering expenses.

    To review - at the end of Q3, Reis reported the national office vacancy rate rose to 16.5% in Q3 from 15.9% in Q2. We should have the Q4 numbers in early January.

    Office Vacancy Rate Click on graph for larger image in new window.

    This graph shows the office vacancy rate starting 1991.

    The peak following the previous recession was 17%.

    I've also heard there has been a sharp increase in occupied available space (tenants planning to downsize), suggesting the vacancy rate could increase significatly in 2010.