Question

You are the owner of a 50,000 square foot office building in a market that is currently 17% vacant. The overall market currently totals 2.6 million square feet, but a new building with 75,000 square feet is expected to come on line in one year, replacing two smaller buildings which had totaled 35,000 square feet. The market is relatively strong, with net annual absorption totaling 85,000 square feet per year. A large tenant has just moved out of your building however, and your vacancy is currently 35%. (1) What is the projected market vacancy after one year. (2) What fraction of the annual absorption would you have to achieve in order to fill your building? (3) What fraction would you need to achieve "fair share" (the same vacancy as the overall market)?

Answer 1

Area owned	50,000	sq.ft.
Current occupancy of building owned	32,500	sq.ft.	(1-35%)*50,000
Current vacancy in market	17%
Current market supply	2,600,000	sq.ft.
New supply in one year	75,000	sq.ft.
Ougoing supply in one year	35,000	sq.ft.
Net supply in one year	2,640,000	sq.ft.	(2,600,000 + 75,000 - 35,000)
Net annual absorption	85,000	sq.ft.
1) Projected market vacancy after 1 year :
	sq.ft.
Current vacancy (2,600,000 x 17%)	442,000
Net annual absorption	85,000
Projected vacancy (a)	357,000
Supply in one year (b)	2,640,000
Vacancy % (a/b)	13.52%
Answer : 13.52%
2) % of annual absorption required to fill the building
Vacancy in the building	17,500	(35% x 50,000)
Net annual absorption	85,000
% required to fill the building	20.59%	(17,500/85,000 * 100)
Answer : 20.59%
2) Fraction needed to have same vacancy as market i.e. to achieve " fair share "
This is assuming present timeline (i.e. vacancy of 17%)
Area owned	50,000
Vacancy at 17%	8,500
Fraction of net annual absorption	10.00%	(8,500/85,000 * 100)
Answer : 10%