The past year was one of evacuations in several of Boston’s high-profile buildings, which left the city with roughly 1 million square feet of negative absorption of office space, according to statistics from Lincoln Property Co.
When tenants moved and downsized to new locations throughout 2009 and 2010, there were no tenants ready and willing to lease the empty tower space they vacated with premium-asking rents, according to Lincoln’s research department.
A survey of properties shows that vacating companies left gaping holes in the office space of many buildings, and industry experts say it will be a slow grind to fill the emptiness in the heart of the city.
"I don’t see a big push in terms of activity," Robert Doherty, vice president of leasing and brokerage for the Beal Cos., told Banker & Tradesman. "It all depends on what you have for availability in terms of product. The lower floors in the high rises have just become a commodity … but there’s still great demand for the higher floors’ views, and vacancies for that are tight."
"When you look at the fundamentals of office leasing, it’s all about jobs," Doherty added. "Until people start hiring and you have commodity space … you have all this supply that needs to be absorbed. I think in Boston – on the office front – it’s going to be cautious as you go, very slowly, one bid at a time."
That’s not good news for landlords with tens or hundreds of thousands of square feet up for grabs. According to Lincoln Property’s numbers, One International Place has a total of nearly 440,000 square feet available, with 307,800 vacated in 2010 alone. At One Federal Street, 212,500 square feet was abandoned in 2010, leaving a total of approximately 250,000 square feet available. And at One Congress Street, government agencies vacated to make way for a planned mixed-use development that has stalled. While the Department of Industrial Accidents moved in this quarter, the change still resulted in negative absorption of 134,300 square feet, with 185,000 square feet available.
Other significant vacancies include 225 Franklin St., with 84,500 square feet vacated this year and 148,000 square feet left available. At 99 High St., 90,700 square feet were evacuated in 2010 and about 126,000 square feet is available. South Station lost the Massachusetts Division of Insurance and other government agencies, emptying about 70,000 square feet. And although it was not a direct result of leases rolling this year, about 330,000 square feet is empty at Fan Pier, and another 282,000 at 53 State St.
"We’re still seeing the same general trend that we’ve been seeing, and I don’t expect it to change substantially in 2011 unless the global economy changes," said Don Hause, managing partner at Keystone Strategies. "You’re just not seeing business growth, with the exception of the life sciences sector. We’re seen a fair amount of activity this year…but we’re not seeing any positive net growth, particularly in the services sector, which is the lion’s share of business in the Back Bay and downtown Boston.
"I think landlords are still going to have to offer discounted rents and offer as many incentives as possible," Hause added. "Obviously there’s a limit to how much a landlord can and wants to discount their asset. While they’re anxious to lease the space, they’re still careful and selective about the types of transaction they execute, especially as it relates to how they’re financing their building based on those tenants."
