The Journal Gazette
 
 
Thursday, September 30, 2021 1:00 am

Office vacancy rate of 9.2% low but healthy

SHERRY SLATER | The Journal Gazette

The local market's office vacancy rate has fallen to 9.2%, the lowest in at least a decade, according to a report being released today by The Zacher Co.

The local firm projects that next year's report will show more empty office space, but that's not necessarily a bad thing, said Steve Zacher, president and managing broker of The Zacher Co.

Electric Works is on pace to add more than 475,000 square feet to downtown's total by Oct. 1, 2022, and Riverfront at Promenade Park will add 30,000 square feet in the next 12 months, the report states.

Those are just two of multiple projects proposed or already under construction. The activity reflects developers' optimism about the local economy, Zacher said.

“That gives a place for growing companies to expand,” he said during a phone interview. “Otherwise, they'd have to build or go somewhere else.”

Zacher described 9.2% vacancy as a healthy level. The rate reached 17.3% in 2012, reflecting economic uncertainty in the wake of the Sept. 11, 2001, terrorist attacks. It has been above 13% seven of the past 10 years.

Although a high vacancy rate isn't good, a lower one isn't always better. Zacher said a city wouldn't want to reach full office occupancy.

“You have to have some space available for companies to move into,” he said. “You wouldn't want too low of a vacancy rate.”

Local office inventory totals more than 13.4 million square feet.

The market absorbed about 247,000 additional square feet from Oct. 1, 2020, to today. The figure reflects new construction and converted office space added to the market. Last year's absorption was almost four times the amount absorbed by the market the prior year.

The health care sector continues to drive a significant percentage of local construction. Five projects in the works combine for more than 355,000 square feet of additional office space, according to Zacher's report. They include buildings for Parkview Health, Lutheran Health Network and Indiana University Health Fort Wayne.

The market study's authors expect lease rates to range from $27 to $31 per square foot for new downtown construction, an amount “that (has) never been seen in the Fort Wayne market.”

Zacher said Electric Works, for example, will offer much more than space to tenants. “You're going into this dynamic, campus environment,” he said, adding the location will help employers attract and retain talent.

When the cost of recruiting workers is considered, Zacher said, companies will come out ahead even though they are paying higher rent.

Rental rates for second-generation office spaces will likely remain stable or decline slightly, the report said. And landlord incentives for those spaces will likely increase over the next year.

sslater@jg.net

At a glance

Following is a list of the office space occupancy rates for different areas of the city, with available office space in square feet and vacancy percentage:

Downtown: 5,455,385, 9.3%

Northeast: 2,609,875, 10.6%

Northwest: 1,688,278, 9.1%

Southeast: 993,167, 7.2%

Southwest: 2,682,847, 8.6%

Total: 13,429,552, 9.2%

Source: The Zacher Co.


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