After years of annual 15% to 25% increases, Jackson Hole office prices have plateaued and are even showing decreases. The drops are attributable to three factors.
Mortgage rates haven’t gone up, a typical cause of decreased values, but credit is harder to come by. As a result, fewer buyers are qualified to purchase office property, putting downward pressure on prices. Lenders are demanding a higher debt coverage ratio, causing lower loan to value ratios, and pushing more buyers out of the pool.
Building Glut Leads to Oversupply
New office buildings at 690 South Highway 89, 172 Center Street, and 10/20 Pioneer Lane will add over 15,000 square feet of office space to the market in the next six months. This comes on top of the recently completed building at 275 Veronica Lane which still has 3,300 square feet available. In all, I estimate there is over 47,000 square feet of available or soon to be completed office space in Jackson. I can’t recall a time when there was more than 5,000 or 6,000 square feet available. In addition, we are receiving a steady stream of phone calls from office tenants who would like to downsize, or are seeking subtenants to take over vacant space within their offices, which leads us to…
Cutbacks Reduce Demand
The recession has caused quite a few local firms to downsize. The construction/real estate industry has been hit the hardest, with contractors, engineers, architects, real estate companies, and title companies all laying off employees. Some have closed their doors, while others are trying to sublease empty offices or have taken advantage of lease endings and have moved to smaller quarters.
These factors have reduced demand for office space, and prices are beginning to fall as a result. Landlords may be looking at extended vacancies, as it may take several years to absorb the existing office space in town. This will create opportunity for the stronger tenants in town, as they will be able to use their leverage to negotiate lower leases. It also creates opportunity for the well capitalized investor, who may be able to acquire some excellent property in Jackson that has long been rather expensive.