OFFICE

OFFICE

Although there was a considerable amount of activity in the office market during 2013 the year-end statistical data is similar to last year.  The overall vacancy rate was 17.9% compared to 17.5% and the overall asking rate increased slightly to $11.87 per square foot, up from $11.75.  The statistical data for the Class A sector was also similar with a year-end vacancy rate of 11% which was identical to 2012.  The overall asking rate showed a slight drop to $17.41 from $17.74.  The Class A sector on the east side of the city continues to be the most popular destination for office tenants as reflected with vacancy rates less than 8% in the southeast and northeast quadrants.  The A sector in the northwest quadrant is impacted by several vacancies in newly constructed medical buildings.  Vacancies in other office types are hard to find.  The Class A market in the Central Business District continues to be stagnant.

Some of the biggest news in the office market in 2013 had nothing directly to do with leasing activities. The Real Development saga continues as two of their former buildings were sold at auction last year and the Wichita Executive Center was taken back by the lender. The Petroleum Building and Broadway Plaza were taken back by lenders in early 2014. The fate of their redevelopment project for the former Exchange Place and Bitting office buildings remains in limbo. Also going back to lenders were the Epic Center and the Brittany Office Towers. The former Commerce Bank Building at 150 N. Main, went dark and is now on the market for sale.  On positive notes, the Thorn Americas Building is fully occupied and is scheduled to come out of bankruptcy in 2014.   Prime Wichita office buildings were attractive to investors as River Park Place, the Stinson Morrison Hecker Building, Terra Cotta Tower and portions of the Wilson Estates Office park were sold to local buyers.  In the Central Business District, The Lux conversion project was completed and leases were signed with new office tenants.  High Touch purchased the building they have been leasing and construction was completed on The Kansas Health Foundation’s Leadership Conference Center.  This was the first new office construction in the downtown area in over 30 years. 

FORECAST

The rate of foreclosures and distressed sales should slow as the Real Development properties continue to get taken off the market, otherwise, it should be pretty much activity as usual.  The Central Business District will be watched closely as the various state and federal agencies vacate the former Macy’s and IRS buildings leaving close to 300,000 square feet of vacant space. The tightening inventory on the east side could trigger new construction as landlords’ positions continue to strengthen and rates continue to increase.

10 Year Vacancy Rates vs. Lease Rates Office Class A

Year Lease Rate Price $ Vacancy Rate %
2004 14.24 $ 11.8%
2005 15.05 $ 11.6%
2006 15.71 $ 15.0%
2007 17.25 $ 8.8%
2008 18.79 $ 10.0%
2009 17.14 $ 13.1%
2010 17.34 $ 13.1%
2011 17.83 $ 9.0%
2012 17.74 $ 11.0%
2013 17.74 $ 11%

Total Office Stats

Market #Bldgs Total SF Vac SF VAC% Quoted Rates
CBD 94 3,724,057 826,622 22.2% $10.74
Delano 4 37,050 2,325 6.2% $7.74
Northeast 140 2,876,796 306,936 10.6% $14.55
Northwest 70 1,047,338 255,434 24.3% $13.89
Southeast 60 1,746,648 284,582 16.2% $10.74
Southwest 15 180,253 45,207 25% $10.19
Totals 405 9,612,142 1,721,106 17.9% $11.87

Office Class A Stats

Market #Bldgs Total SF Vac SF VAC% Quoted Rates
CBD 17 1,405,180 172,839 12.3% $15.20
Northeast 38 1,275,961 82,902 6.5% $20.26
Northwest 35 486,199 100,613 20.6% $19.06
Southeast 7 220,640 17,398 7.8% $16.27
Southwest N/A N/A N/A N/A N/A
Totals 97 3,387,980 373,752 11% $17.41

Office Class B Stats

Market #Bldgs Vac SF VAC% Quoted Rates
CBD 62 1,771,224 467,997 26.2% $10.19
Northeast 86 1,484,491 197,957 13.3% $13.14
Northwest 30 482,451 122,050 25.3% $11.38
Southeast 43 1,295,573 210,925 16.2% $10.50
Southwest 11 147,819 44,057 29.8% $10.24
Totals 232 5,282,558 1,042,986 20.1% $10.95

Office Class C Stats

Market #Bldgs Total SF Vac SF VAC% Quoted Rates
CBD 15 547,653 185,786 33.9% $7.95
Delano 4 37,050 2,325 6.2% $7.74
Northeast 16 116,344 26,077 22.4% $7.09
Northwest 5 78,688 32,771 41.6% $7.36
Southeast 10 230,435 56,259 24.4% $9.92
Southwest 4 32,434 1,150 35.5% $8.50
Totals 54 1,042,604 304,368 29.1% $7.42
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