Study: Telco Vacancies At 45 Percent
Grubb & Ellis database tracks 46 million s.f. of properties

May 14, 2001 -- The vacancy rate for telecom facilities reached 44.6 percent at the close of first quarter, according to new research from the telecom group of the commercial real estate firm Grubb & Ellis.
While the glut of vacant space will come as no surprise to industry observers, the Grubb & Ellis research is among the most ambitious efforts yet to quantify the market's slump.
Grubb & Ellis said it had catalogued 46.5 million square feet of commercial space devoted to telecom, of which 20.7 million square feet (44.6 percent) was vacant. By comparison, the national office vacancy rate at the end of the first quarter was 10.1 percent, while the industrial vacancy rate was just above 6 percent.
Another 5 million square feet of telecom space is under construction, with an additional 3.7 million square feet in the planning stages. Of the space currently under construction, 68.7 percent of the footage available for pre-leasing was unleased, according to Grubb & Ellis.
Those numbers foreshadow more consolidation, according to an analysis of the numbers by Grubb & Ellis.
"In the short term, it appears that the large, established telecom companies such as Sprint, Qwest, Verizon and a handful of others are waiting on the sidlines as upstart companies downsize or go out of business," the summary states. "At some point, they are likely to enter the market to acquire telecom facilities and infrastructure at a fraction of the replacement cost."
In the meantime, many facilities consisting of shell space will likely be converted to alternate uses, while some of the built-out telecom/data center space may be filled through short-term leases to non-telecom clients that require redundant power, such as financial service companies.
But all is not doom and gloom, G&E insists.
"The long-term trend for these properties and this market is really quite favorable,'' explains Mike Gerard, executive vice president and national director of the Grubb & Ellis Telecom Group. "These properties are well- positioned in an industry segment that is only in its infancy.
"Furthermore, demand for this space will be reinvigorated as broadband technologies become mainstream," Gerard added. "Although external factors like the capital markets and the financial health of the telecom sector will impact how quickly new services will be rolled-out, there is no doubt that there will be a resurgence in the demand for telecom space.''
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 carier hotel and data center facilities. 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.
"We believe that this is the first comprehensive aggregation of research on the growing market for telecommunications facilities,'' said Chris McDougall, national director for research services for Grubb & Ellis. "Creating this database and closely tracking these facilities will help our clients-owners, investors and tenants-better understand this emerging specialty market."
Grubb & Ellis defined "telecom real estate facilities" as carrier hotels, colocation facilities, and data centers that were more than 75 percent dedicated to these uses. The minimum size for facilities to be considered was 20,000 square feet.
Annual asking rents -- net all costs for real estate taxes, common area maintenance and insurance -- ranged from $5.25 per square foot to $45 per square foot. Rents for properties at the low end of this range typically are industrial facilities that were obsolete previous to being reconfigured, but still have use issues with column and floor size.
Grubb & Ellis is a commercial real estate firm with nearly 8,000 people in over 200 offices in 29 countries.