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Office Building Lease-up

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Drel

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Sep 9, 2015
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Licensed Appraiser
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Canada
Hi,

I am wondering if anyone is aware of what a typical lease-up phase would be for a new office building to achieve stabilized market occupancy is. If so, any references to a textbook/article would be greatly helpful!
 

Pittsburgh Pete

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May 6, 2008
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Certified General Appraiser
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Pennsylvania
It is a function of the specific market. Any number of areas in my neck of the woods would lease up at different rates depending upon supply and demand. You won't find what you seek in a book anywhere.
 

Drel

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Freshman Member
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Sep 9, 2015
Professional Status
Licensed Appraiser
State
Canada
It is a function of the specific market. Any number of areas in my neck of the woods would lease up at different rates depending upon supply and demand. You won't find what you seek in a book anywhere.
Certainly understood. Is there an approximate lease-up benchmark that you are aware of before it can be said that there may be some type of site-specific issue affecting its ability to lease up?
 

Gobears81

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Nov 7, 2013
Professional Status
Certified General Appraiser
State
Illinois
Certainly understood. Is there an approximate lease-up benchmark that you are aware of before it can be said that there may be some type of site-specific issue affecting its ability to lease up?
There are no benchmarks. It is truly site and market specific. You have to look at vacancy rates for office space and compare that to frictional vacancy rates. Then consider growth rates in your market. From there you can calculate how much additional demand for office space there would be and based on growth rates, you can also project timing.
 

Drel

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Freshman Member
Joined
Sep 9, 2015
Professional Status
Licensed Appraiser
State
Canada
Great. Thank you for both for the insight.
 

Eli

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May 12, 2007
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Certified General Appraiser
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Tennessee
Great. Thank you for both for the insight.
I hope you have some pre leases already if it is not single tenant.
 

Michael S

Senior Member
Joined
Mar 18, 2009
Professional Status
Certified General Appraiser
State
New Mexico
Anyone know the ASCII code for infinity?

But seriously it depends on a lot of factors. 10,000 square feet of office space will lease up faster than 100,000 square feet. I would expect a project to take a anywhere from 6 to 36 months. If it's much longer than that it's probably a sign that there's insufficient demand to justify building new office space.

One way to look at it is to determine the net absorption in your market or submarket. This will generally come from a third-party source like CoStar, or market reports from commercial real estate companies like CBRE, Colliers, Cushman & Wakefield, etc. Lets say your submarket contains 1 million square feet of comparable space (say Class B), average occupancy is 90%, and net absorption was 50,000 square feet last year (and is expected to be about the same going forward). If you built a new 50,000 square foot office building the submarket would now contain 1.05 million square feet. Your office building would represent 4.76% of the market. As new space it might be expected to capture a larger portion of the market, say 8%. So 8% of 50,000 is 4,000 square feet. Obviously that's not very much and at that rate lease-up would take a decade or more.
 
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