While there has been a more positive feeling surrounding the office space market in 2013, we have seen the same trends continuing from last year in most sectors of the market.
Absorption rates have remained consistent with last year and we see many firms continuing to upgrade the space they occupy. Office sizes are shrinking in direct response to advancements in technology, which have allowed many administration and back office work to be performed in lower cost jurisdictions. Changing working environments has also become more apparent with firms seeking a higher ratio of open space to individual offices.
Class A office space remains extremely strong. Vacancy rates have dropped slightly from last year and remain well below 5%. Although we have not seen an increase in base rental rates in the class A market over the last twelve months, the gross occupancy cost for tenants has increased due to the increase in common area maintenance (CAM) charges.
The class A office space base rent (before taxes, maintenance and insurance), is now comparable with midtown New York and the West End of London. These rents are only sustainable if the Cayman financial services sector continues to attract high margin business. The recently released government statistics for 2012 show some encouragement in this regard, namely, an increase in the total employed population and an increase in company registries, both exempt and foreign and resident companies. These increases, combined with a burgeoning insurance and reinsurance sector indicates that the class A office space market continues to look bright in the short to medium term.
The class B office space market remains in a state of depression. This sector suffers from a high vacancy rate and lower net rents. There is currently over 200,000 square feet of class B office space available for lease, equating to a vacancy rate of 18%. With the current annual absorption rate of class B space at 50-60,000 square feet it leaves the market with nearly a four-year supply.
Realistically, barring a huge expansion in the world economy, some of this class B office space will never again be leased as office space. For many buildings there may be a higher use as residential, retail or institutional spaces. The new cruise ship port combined with a thoughtful and targeted regeneration of central George Town will allow some of these buildings to consider a change of use which would be beneficial for Landlords and residents alike.
Some class B landlords have begun to review infrastructure and initiate capital improvement programs to compete and retain tenants, but even with these improvements we believe they will need to consider increasing concession packages to attract new tenant’s. “One man’s gain is another man’s loss” in an increasingly competitive game of musical chairs continues to depict Cayman’s office space market with the class B market feeling the brunt of this merry go round.
International Realty Group Ltd. (IRG) is Cayman's leading commercial property broker, specializing in the leasing, sale, acquisition and analysis of office, retail and general commercial space in Cayman and on commercially zoned raw land for development. IRG also provides tenant and landlord representation services to a wide range of Cayman commercial property owners, investors and tenants, and provides strategic advice on Cayman property asset and property management based upon our 20 years of experience in the commercial property business here.
IRG has an unrivalled working knowledge of the Cayman commercial space market and can offer its clients access to the only 20-year historical office space database in the Cayman real estate market, invaluable for market analysis and feasibility studies and assisting in tenant and landlord negotiations. IRG develops customized office and retail leasing and sales programs for our clients' properties and offers tenants and investors the widest available knowledge of the Cayman office space market.
Please call (345)548-4116 or email Ollie@irg.ky for further information.