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Grubb & Ellis report: Telecom real estate demand is slow, but shows potential

The market for real estate telecom is saturated, according to a recent Grubb & Ellis research report, which revealed that telecom vacancy levels dropped to 38.9% in the second quarter of this year from 44.6% in the first quarter. But the long-term outlook for telecom-related real estate isn’t bleak, according to Mike Gerard, executive vice president and national director of the Northbrook, Ill.-based Grubb & Ellis Telecom Group.

Gerard contends that there is strong potential for growth and profits. Statistics indicate that 5.4 million sq. ft. of telecom space is under construction, with only 18.5% pre-leased. Another 6.4 million sq. ft. of telecom space is planned, but not expected to come to bear unless metropolitan vacancy rates fall below 10%.

Although the second-quarter decline in vacancy appears optimistic, it doesn’t actually indicate an improvement in market demand. The report found that the drop actually reflects tenants who had pre-leased space and moved into the space after construction was completed. The overbuilt market has now shut down the development pipeline, and it will take time for the excess to be absorbed and the market to reach equilibrium.

Gerard contends that demand will rebound as telecom companies realize their future potential. As the demand for telecom services grows, so will the demand for telecom real estate.

The report defined telecommunications real estate facilities as buildings in excess of 20,000 sq. ft. with at least 75% of the building’s space allocated for telecom, data center and carrier hotel or co-location facility usage. The Grubb & Ellis telecom market database tracks 56 million sq. ft. of commercial space devoted to telecommunications functions.

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