When 1999 began, most observers agreed that the Cambridge office market could not get any tighter. By the time the year ended last week, however, it had indeed.
We have tenants who just don’t know where to go, said broker Tamie R. Thompson of Spaulding & Slye Colliers, whose firm reports a razor-thin 0.3 percent vacancy rate in Cambridge. It’s just very difficult to find space there right now.
Cushman & Wakefield places the current vacancy rate in Cambridge at 1.8 percent, down from 6 percent at the start of the year. The difference between C&W’s and Spaulding & Slye’s numbers reflects when leases are recorded, as well as the sampling of buildings listed in each survey.
In any event, C&W Managing Director and Cambridge leasing specialist Mark Winters agreed that companies must scramble if they wish to lease space in the city, considered a popular home by high-tech and biotech firms that wish to align with Harvard University and the Massachusetts Institute of Technology. Although build-to-suit construction is one possible solution, Winters said tenants in the 10,000- to 50,000-square-foot range typically do not have the credit strength to pursue that option. The result, he said, is many firms are finding their dream of relocating to or staying put in Cambridge is simply not feasible.
It has been crazy over there, Winters said. It’s hard to fathom how people can deal with such a space crunch, but it doesn’t show any signs of letting up.
Building to Suit
Reflecting the continued demand, Cambridge’s average asking office rental rate has risen to $40.51 per square foot overall and $41.36 per square foot for Class A buildings located in the core East Cambridge market. The overall rate is about 7 percent above the average at the start of 1999, and confirms predictions by Winters and others that Cambridge would see its average asking rate break the $40 barrier by year’s end.
Despite the difficulties of the market, Cambridge nonetheless enjoyed a solid leasing year in 1999, with C&W reporting 1.2 million square feet of net absorption and Spaulding & Slye putting the mark near 1.7 million square feet. According to Winters, however, the bulk of the activity stemmed from the completion of several build-to-suits, projects that will help individual companies but not provide relief to the market in general.
Winters said that at least 800,000 square feet of 1999 absorption could be tied to the build-to-suits. Cambridge Technology Partners moved into its new 175,000-square-foot tower at Cambridge Center this summer, for example, while Camp Dresser & McKee had a 180,000-square-foot building developed on its behalf at One Cambridge Place. Other significant build-to-suit projects included 190,000 square feet for Monitor Corp. at Two Canal Place in the Lechmere district, 220,000 square feet for Millennium Pharmaceuticals at University Park at MIT and another 80,000 square feet there for Monsanto Corp.
Perhaps the most successful existing building in Cambridge last year was the Technology Square complex owned by Beacon Capital Partners. Taking advantage of several hundred thousand square feet left over from the departing Polaroid Corp., Beacon scored several major deals in 1999, with Forrester Research committing to 140,000 square feet, Akamai Technologies leasing 107,000 square feet and MIT’s Computer Lab taking another 100,000 square feet.
More often than not, however, companies opted to pursue opportunities outside of Cambridge. Although the city has seen a steady stream of tenants head for the suburbs over the years, the exodus has become more pronounced of late given the lack of affordable quarters for many firms. Among the biggest defections of the year was Allaire Corp.’s decision to take more than 200,000 square feet at Riverside Center in Newton, while Tvisions is relocating to the Arsenal on the Charles in Watertown, as is Bright Horizons Day Care. The two firms will lease more than 100,000 square feet at the Watertown property.
Ironically, one of the biggest non-moves last year occurred in Cambridge as well, with Arthur D. Little Corp. committing to more than 350,000 square feet at the Arsenal project before reversing course two months ago and opting to stay put at Acorn Park in Cambridge’s Alewife section.
Thompson said she believes the Allaire Corp. deal underscores a willingness among Cambridge tenants to broaden their suburban searches. Whereas firms previously concentrated on such markets as Burlington and Waltham, Thompson said Cambridge transplants are even looking as far afield as Interstate 495, where lease rates can be nearly half of what they are in the Boston and Cambridge markets.
