One significant transaction for the Boston office market in the third quarter was the renewal by Fidelity Investments for approximately 110,000 square feet at 53 State St., aka Exchange Place, in the city’s downtown area.
Boston’s office market enjoyed a solid third quarter, according to figures released last week by Meredith & Grew Oncor that showed a continued decline in vacancy rates and healthy net absorption of space.
“It was definitely a good quarter,” concurred Meredith & Grew Senior Vice President Francis X. Durand, whose firm puts the city’s vacancy rate at 14.2 percent overall, with submarkets such as the Back Bay faring even better. The 57 million-square-foot Boston office market posted 676,000 square feet of net absorption during the past three months, Meredith & Grew reported, bringing the year-to-date total to an impressive 1.43 million square feet of absorption.
Other third-quarter figures compiled by Boston real estate firms were not available as of Banker & Tradesman’s press deadline, although Spaulding & Slye Colliers research director Benjamin Breslau said his company’s preliminary reports also indicate a “positive” quarter for the city, as well as for Greater Boston overall. Breslau and other research specialists said they expect to have the final figures available this week.
Richards Barry Joyce & Partners research chief Brendan Carroll is projecting negative absorption of 69,000 square feet for Boston during the quarter, but he insisted the drop is more attributed to longer-range factors than being a sign that the market is taking a turn for the worse.
People “should not be too concerned about it,” said Carroll, explaining that merger-and-acquisition activity announced well in advance of the latest three months was finally impacting the statistics, and adding that he believes the previous mark of seven straight quarters of positive absorption is the more lasting trend than the “bump in the road” that he insists the newest numbers reflect.
Armed with figures that are much rosier than RBJ’s, Durand agreed that the Hub’s office market is on the mend after beginning the new millennium locked in one of its worst periods ever encountered.
The differences in net absorption between various market reports typically reflect divergent samples of space, and also disparities of when certain deals such as major leases or defections are recorded. In any event, most observers spoken with did maintain that Boston has bottomed out on office rental rates and is enjoying a robust level of activity. That is especially for high-rise space, noted Durand, with Meredith & Grew placing a vacancy rate of 5.5 percent for space on the 20th floor and above. The figure is well below the 10 percent number typically used as a measure of market equilibrium.
“The way we typically describe it to our clients is that the market has stabilized,” said Durand, who cited a particularly solid submarket in the Fenway/Kenmore district, which has the lowest vacancy rate at 3.8 percent. The Back Bay registered 13 percent even though it had just 59,000 square feet of net absorption for the quarter.
The strongest third-quarter activity was found in Charlestown, which had 260,000 square feet of net absorption after Partners Health Care took 200,000 square feet at the Schrafft’s Center. That deal was a boost for Charlestown, with Partners taking space left behind by the merger of ManuLife Financial Corp. and John Hancock Financial Services that many thought would drag the submarket down should it have been left empty.
Boston’s Financial District also had a robust quarter, registering 197,000 square feet of net absorption to bring the vacancy rate down to 15.5 percent. Although no Boston submarket had negative absorption in the third quarter, Crosstown and North Station are both in the red for the year in that indice, according to Meredith & Grew. North Station is still highest on the vacancy front with its mark of 17.9 percent.
Besides the Partners lease, another significant transaction in the third quarter was the renewal by Fidelity Investments for approximately 110,000 square feet at 53 State St., aka Exchange Place, in downtown Boston. While apparently not representing an expansion, Fidelity’s decision to stay put at Exchange Place was seen as a positive for the market because company officials had been weighing a departure of the building.
Durand said he has been impressed by the diverse nature of the tenant population in Boston right now. Along with the financial services and health care deals being struck, several law firm requirements are also circulating, said Durand, who added that the bulk of Boston office requirements are averaging between 15,000 and 25,000 square feet. “That has really been a sweet spot in the market,” he said. Meredith & Grew completed two deals in that range during the third quarter, including the relocation of Charlesbank Capital Partners from 600 Atlantic Ave. to 200 Clarendon St. in the Back Bay. The sublandlord in that deal was represented by William Barrack and Brad McGill of Spaulding & Slye.
Durand joined Meredith & Grew Executive Vice President Ronald K. Perry and Assistant Vice President Roger Breslin in negotiating the Charlesbank lease for the tenant, while Assistant Vice President Lawrence T. Epstein brokered a 14,000-square-foot lease at 200 Clarendon St. on behalf of MPM Capital.
