Those shiny new office buildings downtown and trendy office parks under construction on Jefferson Highway may be good for the local construction industry. But they’ve added a lot of space to the office market, which is a key factor behind the decrease in occupancy last year.
Overall occupancy decreased from 85% to less than 82.5% in 2016, while rental rates remained flat, according to Ty Gose with NAI/Latter & Blum in a presentation on the office sector at the annual TRENDS seminar.
The other factor affecting the slight downturn was the continued low price of oil, which fell to below $40 per barrel last year.
“But oil is now stabilizing at $50 and BRAC has estimated we will gain 2% in employment this year,” Gose says. “So hopefully occupancy will go back up.”
Among the other takeaways from Gose’s presentation:
- The downtown submarket saw the biggest decrease in its occupancy rate, largely because it added some 240,000 square feet of new space with the IBM building and the first building of the Water Campus. At the same time, downtown gained 140,000 square feet of new tenants so “it’s not as bad as it looks,” Gose says.
- The Acadian-College submarket, with its more than 620,000 square feet of all Class A office buildings, was the strongest submarket with an average occupancy rate of 95%.
- Some 180,000 square feet of sublease space is available, a sizable chunk of space that needs to be absorbed before the market can expect to see positive growth again.
- Tenant concessions are increasingly popular.
- The River House mixed-use development on the site of the former Prince Murat Hotel on Nicholson Drive will be completed in the next 30-60 days and an announcement about commercial tenants is expected soon.
- The August 2016 flood had no measurable impact on the local office market.
In the local residential market, the flood has had a significant impact and in many respects it has been positive, according to Kyle Petersen of Keller Williams Realty First Choice, who made the residential presentation at the TRENDS seminar.
Home sale volume was up more than 10% in 2016 over the previous year, and demand outpaced supply, causing homes to fly off the market: 53% of homes sold within the first 30 days.
“Two weeks ago, I listed a house at 6 p.m.” Petersen says. “I had two offers by 8 p.m. and had to cancel seven showings the next day. Homes are selling within hours of being on the market and at full asking price.”
That said, average home sale prices in the Capital Region decreased 3% in 2016, after increasing a total of nearly 10% in 2014 and 2015.
—Stephanie Riegel
