2005 saw a rebound for the office market in Cambridge, including 245 First St., which achieved full occupancy by the end of the year.
From an office standpoint, Cambridge remains far removed from the zero percent vacancies and record rents that earned the city national acclaim in 2000, but a late-season surge and continued improvement on the life sciences front have given the since-battered submarket a boost entering the new year.
“The office market has found a floor,” NAI Hunneman Commercial Senior Vice President Greg Larsen said last week, with gains seen particularly for the better space. “Premium locations are tightening up,” said the veteran broker, who has navigated Boston’s inner suburbs for nearly two decades. According to NAI Hunneman’s latest report, Class A vacancies are down below 20 percent for the first time since the technology crash battered all three of Cambridge’s office clusters to begin the new millennium. Led by a notable rebound in the dominant Kendall Square district, Class A vacancies fell from 25.8 percent to begin the year to 19.4 percent, said NAI Hunneman.
Other Cambridge reports released last week were even more encouraging, including a 12.4 percent direct vacancy registered by Spaulding & Slye and a 15 percent mark provided by Meredith & Grew, although both samplings combine all commercial properties together, including laboratory space. By any measure, the data seemed to justify a tenor of optimism for the city’s office market, with Spaulding & Slye and Meredith & Grew each recording more than 1 million square feet of net absorption for the year.
“People can feel the change,” said Spaulding & Slye Vice President John A. Osten, whose outlook for 2006 is a continued drop in office vacancies and slight gains on the rental side of the equation. A select few buildings already have scored $30-per-square-foot rents in recent months, according to industry observers, including One Memorial Drive, which is said to have approached the mid-$30 range. Equity Senior Vice President Maryann Gilligan Suydam did not discuss rental rates, but said the tenant roster did firm up last year at One Memorial Drive. Notable signings included a 5,000-square-foot lease with Clarus Ventures and an 11,000-square-foot renewal in the distinctive 17-story tower.
While “some challenges” remain to complete leasing at One Memorial Drive, Suydam said the Chicago-based REIT saw good activity in 2005 at its Cambridge properties, achieving full occupancy at 245 First St. after starting the year at nearly 30 percent vacant. The REIT last week acknowledged completion of a long-anticipated lease with CombinatoRX, a life sciences firm which is taking 18,000 square feet of office space and 22,000 square feet of laboratory space at 245 First St. Equity was represented in-house on that deal by Managing Director Duncan Gratton, while Richards Barry Joyce & Partners principal Steve Purpura negotiated for the tenant.
‘A Little More Aggressive’
Equity Office Properties has led the pricing pack on leasing in Cambridge due largely to its service-oriented approach, said NAI Hunneman associate Ryan Weber. “They just do a really good job of managing their buildings,” said Weber, adding that he believes the ongoing flight-to-quality trend will benefit office properties such as One Memorial Drive well into 2006. Weber also cast a sunny forecast for Cambridge overall, although he warned that not all of the holes have been plugged. “There is still a lot of office space out there,” he said, including three floors now being offered at Four Cambridge Center, primarily due to consolidation from Biogen Inc. The Riverfront Office Park also has substantial space out for takers at both its One and 101 Main St. office buildings.
The pendulum is still tilted in favor of the office tenant, according to Osten, but that position appears precarious. “My advice to tenants is that you are probably better off doing a deal today than you will be six months from now,” relayed Osten, who said he has noticed some firms entering the market earlier than normal and certain landlords becoming less willing to bend on lease terms such as expansion options. “They seem to be sensing the wind coming back in their sails,” he said of the latter sect. “I think they are becoming a little more aggressive than they have been.”
Small and mid-sized companies have led the recent resurgence in Cambridge, according to Suydam and others, while Larsen said the prospects include both established Cambridge companies and those entering the market for the first time. The “international” cache of a Cambridge address still carries more weight than found in other inner suburbs, said Larsen, citing the growing presence of European-based Novartis AG and more recent arrivals such as Schlumberger and Schering Plough as evidence of the city’s global allure. As impressive as the office arena was last year, life sciences companies were even busier leasing Cambridge laboratory space, so much so that Larsen said landlords whose laboratory buildings are still in shell condition are now attracting serious attention from suitors. “That is something we haven’t seen in awhile,” said Larsen.
In its market snapshot, Meredith & Grew put net absorption in Cambridge at 1.27 million square feet in 2005, paced by 1.07 million square feet on the plus side in East Cambridge. The tiny Harvard Square/Massachusetts Avenue corridor was the weakest at just 4,000 square feet of positive absorption in the fourth quarter, and had a negative showing of 12,000 square feet for the year. The vacancy rate was actually tightest there, however, registering at 6.8 percent for the 1.9 million square feet of inventory. East Cambridge had a 15.6 percent vacancy rate, Meredith & Grew said, while the Alewife/Route 2 district posted an 18.4 percent vacancy at year-end.
Although a bit lower than Meredith & Grew’s results, Spaulding & Slye put net absorption in Cambridge last year at 1.01 million square feet, with the firm tracking similarly slow results in Harvard Square/Massachusetts Avenue and putting net absorption in Alewife at 107,000 square feet. The overall absorption figure is the highest in Cambridge since 1999, Spaulding & Slye said, adding that the average asking rent is now $27.93 per square foot, up 12 percent since last year. There is presently just over 320,000 square feet of sublease space available in Cambridge, according to Spaulding & Slye.
