Report: Telco Vacancies 38.9 Percent
Grubb & Ellis says drop from 44.6 percent doesn't reflect improved demand

August 23, 2001 -- The overall vacancy rate for telecom-related facilities fell to 38.9 percent in the second quarter, down from 44.6 percent at the close of the first quarter, according to new data from the commercial real estate firm Grubb & Ellis.
The findings were included in the firm's second quarterly review of the telecom real estate market, and included 56 million square feet of property, up from 46 million square feet in its first quarterly summary released in May.
Grubb & Ellis said it defined telecom real estate as buildings in excess of 20,000 square feet with at least 75 percent of their space allocated for telecom, data center, carrier hotel or colocation facility usage.
While the overall vacancy rates dropped in the second quarter, vacancies still exceed 30 percent in many major markets, Grubb & Ellis said. By comparison, the nation's office and industrial vacancy rates were 11.5 and 6.7 percent respectively for the second quarter.
"Although the decline in telecom vacancy levels during the second quarter appears optimistic, it does not actually indicate an improvement in market demand," Grubb & Ellis stated in its findings. "Rather, the drop reflects tenants who had pre-leased space in previous quarters and moved into their spaces after construction was completed or upgrades were made.
"The now overbuilt market has shut down the development pipeline, and it will take a considerable amount of time for the excess to be absorbed and for the market to reach equilibrium," it added. "With the evaporation of venture capital and poorly capitalized telecoms, it is unlikely that demand for space will equal that seen in 1999 and 2000 anytime soon."
Nonetheless, the long-term outlook for the market is "far from bleak,'' according to Mike Gerard, executive vice president and national director of the Grubb & Ellis Telecom Group.
"Over the long term, there is strong potential for growth and big profits,'' Gerard added. "Telecom companies are the utility companies of tomorrow -- there will always be demand for telecom services, especially as telecom products advance and grow.''
An additional 5.4 million feet of telecom space is under construction, with only 18.5 percent of it pre-leased, the survey found. Another 6.4 million feet is planned, but will "be difficult to rationalize unless metropolitan vacancy rates fall below 10 percent," according to the summary.
While Grubb & Ellis published a summary of the research findings, information from the larger database is proprietary and accessible only by the firm's clients.
G&E is one of a growing number of sources seeking to build a comprehensive database of carrier hotel and data center facilities. Lehman Brothers released its own findings in June. Others include the federal government, bandwidth exchanges, utilities and industry web sites.
Node Com Inc., a business affiliate of CarrierHotels.com, also maintains a proprietary database of carrier hotel properties to help clients locate space.
Grubb & Ellis is a commercial real estate firm with nearly 8,000 people in over 200 offices in 29 countries.