September 2009 – from Real Estate Search Corporation

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Three major office projects in the financial district have arrived or have almost arrived and we can now see the results of this new supply on growth and vacancy. For this report we will concentrate on this area. Last month we reported on the steady growth of the financial services sector throughout the recession. The Financial District is lead by the financial services sector and the results are clear, vacancy levels are holding while occupancy continues to expand.

THE FINANCIAL CORE – DISASTER? NOT REALLY
Real Estate Search Corporation projected vacancies in 2010 would not reach much above 10% (spring of 2008) and those projections are playing out. Projected Occupancy figures for the early part of 2010 include only known closings if deals close in the next 3 months the true vacancy figures in early 2010 may be below 10%, a remarkably low level compared to other financial centres.

New Supply and Physically Occupied Space in the Financial Core

VACANCY IN THE FINANCIAL CORE – NOT AS BAD AS MANY PREDICTED.
Some analysts suggested vacancy rates could hit 19% in 2010. The evidence simply isn’t there. A 12 month over 12 month analysis shows that the decline isn’t as sever as 2003/2004. In view of the new completions the small spike in vacancy is not reflective of business shrinkage as much as new construction.

Financial Core

WEST END – SIMILARITIES WITH THE FINANCIAL CORE?
Un-leased new buildings under construction often create havoc when the market turns down. The West End where a steady stream of new buildings has added 5 million sq ft to the inventory in just over 5 years could also have come under serious vacancy pressure like the Financial District. The projected gap between built and occupied, however, is roughly the same as the core except that the trend is pointing downward in the New Year.

This trend may continue. The drivers for the office market are not related to the financial services sector rather leaning more to the industrial dependent uses. The recovery has not yet seen industrial based industries return to health causing many to hold back on relocation and expansion plans.