Tuesday, August 14, 2007

Rental rates for local office space lower than national rate increases

Rental rates for local office space not keeping up with national rise

By RACHEL RASKIN-ZRIHEN/Times-Herald staff writer

Article Launched: 08/12/2007 07:21:59 AM PDT

A national trend upward in office space rental fees could eventually lead to an uptick in the local economy, real estate and business experts say.

The cost of office space in Vallejo and Benicia is mostly holding steady or dropping, even as fees skyrocket nationally, local experts said.

But as the cost of office and commercial space rises in larger cities like San Francisco, less-expensive outlying areas like Vallejo and Benicia could benefit, they said.

"This hopefully means a spill-over effect as available office space decreases in the major metro areas, and that would be good for our local economy," said Vallejo Chamber of Commerce Chief Executive Officer Rick Wells.

The Wall Street Journal recently reported office rents nationally are steeply rising, with landlords often charging whatever the market will bear, according to Integra Realty Resources, a North American commercial real estate valuation firm. In some cases, the report said, business owners choose to divide their work force "between an expensive market and a more affordable one."

That would likely be the scenario upon which Vallejo and Benicia could capitalize, said Solano Association of Realtors President Jeff Dennis.

"Locally, 'skyrocketing' is not the term I'd use for office rents, though they may have gone up some," Dennis said. "Rents are up considerably in San Francisco, but we don't have the same kind of pressure for space as they do in the big cities.

"The trickle-out theory, emanating in concentric circles out from San Francisco, bodes well for us out here, as office space becomes scarcer and more expensive in the City," Dennis said.

"But I don't know how long it might take to migrate to this area."

Paul Winders of Benicia's Around Town Realty said the local economy could eventually see an influx of businesses seeking affordable office and commercial space, but eventually is the operative word.

"I don't see any big Bay Area economic boom or dramatic increase in rents or bidding wars for prime space," Winders said. "But if that happened, it could eventually result in a trickle-down effect in our area."

Now, however, office rents in Vallejo are holding at between 75 cents and $1.30 per square foot in most areas, and are "stagnant and dropping in downtown," Winders said.

Only the Springhill Center and Redwood Square - both mixed-use office and retail areas - are commanding higher rents, he added. "They're getting about $2 per square foot there," he said.

Winders blames downtown Vallejo's "retail-only corridor" for low rents there - a situation that may improve as the prohibition against offices on the ground floor is reviewed on a case-by-case basis, he added. Vallejo's downtown developers want a retail corridor downtown, but have admitted possibly jumping the gun with the restrictions as redevelopment work suffers continued delays.

Office and commercial space rents in most of Benicia are actually dropping, Winders said. "Rents are down from last year," he said. "They were approaching $3 per square foot and have dropped to just over $2."

The exception is Benicia's Southampton Center, where rents have risen some, though, like downtown Benicia, the center still has vacancies, Winders said.

E-mail Rachel Raskin-Zrihen at RachelZ@thnewsnet.com or call 553-6824.

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