Following the Industrial Panel was the Office Panel. Let’s just say that they were in good spirits given the fact that the vacancy rate has dropped to 24.7% in the Valley. One of the panelist made a comment about the peak valley leasing rate on a full service basis was $35.75/SF. As of November 2012, that number was down to $25.75/SF.
For the West Valley Office Market, issues still remain that Corporate America is not locating out there. There are a lot of 2,500 to 10,000 SF user in the market, but no big occupiers of space like the CBD and East Valley.
Average tenant improvement costs are ranging from $40/SF to as high as $65/SF for Medical Office. Office condos are average about $50/SF for tenant improvements.
The panel believes that cap rates for Class A properties have compressed and cannot go any lower than what has been seen (6.5% range). Class B and C office properties cap rates are all over the board and largely dependent on the tenant mix and lease terms.
Medical, the bright spot of office, is “recession resistant, not recession proof” as quoted by Julie Johnson, CCIM. She also discussed medical cap rates for properties are around 7.5% and higher with properties on-campus being in the 7-7.5% range. There was further discussion that the traditional “hub & spoke” model of medical did not work any longer and that Primary Care is being purchased by Hospitals.
Part 3 tomorrow – Apartments and Retail!