For the first time since the dot-com bubble burst in 2000, East Cambridge’s supply of office space is so tight that prospective tenants are pitted hard against each other in the race for Class A digs. Simply put, some won’t be calling Kendall Square home.

As the vacancy rate for top-shelf, Class A office space in East Cambridge has plummeted to less than 5 percent, venture capital and other companies have been doing anything in their power to stay in the running for the most desirable digs.

But Kendall Square’s losses may be Boston’s gains, as more tenants either spurned by no vacancy or rising prices in Cambridge are increasingly seeing the emerging Seaport “Innovation District” as a viable alternative.

Just a year ago, East Cambridge’s market was 12 percent vacant, a healthy number by almost anyone’s standards. But now, the market is saturated with tenants to the point of overflowing. The average asking rates in East Cambridge jumped to $42.50 per square-foot in the third quarter, up from last quarter’s $40.88 per square foot, according to Lincoln Property Co.

Landlords, including Boston Properties and RREEF, are taking advantage of their situation and aiming to push rents even higher – into the mid-$50s per-square-foot, a barrier that has finally been surpassed and represents a new benchmark, according to industry sources. And given the scarcity of product, five or six tenants at a time are vying for the best-of-the-best space in buildings like RREEF’s Riverfront Office Park properties on the Charles River and portions of Boston Properties’ 2.7 million-square-foot Cambridge Center complex.

Most of those tenants unable to find homes are looking for 20,000 square feet or less, according to industry executives.

Uncomfortable Positions

The drop in vacancy in East Cambridge Class A product has been attributed to strong growth by technology tenants, conversions of office buildings into lab space and a large lease signed by Pega Systems at One Rogers St. for 163,000 square feet in the second quarter.

But office absorption in the third quarter was primarily focused at MIT-owned One Broadway, where more than a handful of deals were signed that contributed upwards of 50,000 square feet of net absorption this quarter. Those deals include the Cambridge Innovation Center expanding by 25,000 square feet, Opera Solutions’ relocation into 8,900 square feet and Charles River Ventures’ relocation to One Broadway for 8,000 square feet.

“The activity over there is off the charts,” said Daniel Kollar, vice president and Cambridge broker for Jones Lang LaSalle. “If these dynamics continue, there will be a shortage of space in the very near future.”

Tenants that in the recent past had four or five alternatives for a 20,000-square-foot and under requirement now have one, maybe two, options to choose from. And those one or two options are not always ideal; they could just be the only Class A space open at that time at the required size. This puts tenants in an uncomfortable position – decide whether to compete for what may not be an ideal space, or get pushed out of the ideal submarket.

And don’t expect forthcoming new construction to help ease the crush. Although Alexandria Real Estate Equities recently broke ground on its 1.73-million-square-foot Alexandria Center, which will eventually be a mix of office, lab and entertainment space, by beginning construction on a 307,000-square-foot build-to-suit for Biogen Idec, that space will all be pre-leased and occupied before it even gets out of the ground.

“There’s certainly not much space in existing office product for companies in the hunt to occupy in the near term,” said Tom Andrews, Cambridge-based executive vice president for Alexandria.

Buzz-Worthy

As a result, many of the tenants in that position are looking across the river to Boston’s Seaport and Financial District as the most viable and desirable alternatives, according to Mark Roth, executive director for Cushman & Wakefield.

According to other industry insiders, companies are also choosing the Seaport for its proximity to Boston Mayor Thomas Menino’s so-called “Innovation District,” Vertex’s coming headquarters at Joe Fallon’s Fan Pier and new night-life locations.

But others told Banker & Tradesman that, while tech firms would like more than anything to be located in Kendall Square, companies from Cambridge are moving to the Financial District and Seaport because they just can’t afford Cambridge, and they’re dismayed that they aren’t directly next door to venture capitalists and MIT whiz kids.

Vertex choosing Boston over Cambridge – resulting in the city’s largest commercial contract ever – coupled with several new restaurants along Seaport Blvd. down the street from the Vertex project, has created an undeniable buzz along the South Boston waterfront. William Motley, managing director for Jones Lang LaSalle, said in his 23 years as a Boston broker, he has never seen the kind of demand tenants are displaying for space in Boston, especially the Seaport area.

“It has all culminated in this being a very desirable location to live, to work and it seems more and more that live-work environment is becoming almost one in the Seaport,” Motley said. “So the idea that people are living in South Boston and working right there has a lot of value to it.”