It’s getting cheaper to rent office space in Cambridge.
For the first time since 2004, Cambridge rents have fallen as landlords worry about a sluggish economy and tenants are not afraid to negotiate better deals.
“The psychology of the greater global economic crisis is finally being felt here and rents are falling,” said Peter Bekarian, senior vice president at Jones Lang LaSalle, a global real estate brokerage.
Average asking rent for office space dropped by 2.8 percent to $45.71 per square foot in the third quarter, down from $47.06 in the second quarter, according to Jones Lang LaSalle. The rent declines were across the board in all of the city’s submarkets. East Cambridge rents slipped to $49.80, down from $51.26. Alewife Station’s asking rents dropped to $32.35 from $35.73, and in Harvard Square rents were $40.45 compared to $42.02.
Despite the modest decline in asking rents, the amount of available office space in Cambridge continued to tumble during the period from July though September. The vacancy rate fell to 6.2 percent in the third quarter, down from 8.3 percent in the previous quarter. Brokers say the lack of office space under construction has kept the vacancy rate low.
“Single-digit vacancy rates should equal increased rents,” said Bekarain. “But there’s been a dramatic decline in deal velocity because tenants have slowed the pace of transactions and they’ve taken a much more cautious approach to expansion and lease decisions. The psychology out there is that the longer I wait the better deal I should get.”
Let’s Make A Deal
In addition to lower rents, Cambridge tenants are benefiting from landlord concessions including free rent for up to 90 days and tenant improvements, according to brokers.
Joseph Sciolla, managing principal at Cresa-Partners, a commercial real estate firm that only represents tenants, said despite economists’ denials Greater Boston is in the midst of a recession.
“I can safely say that rents will not increase and in some cases rents will fall, and there will be an increase in landlord concessions,” he said. “Leasing is down significantly, and the credit crunch will have tenants staying put. It will be a real slow 2009.”
The Cambridge data comes on the heels of a PricewaterhouseCoopers-Urban Land Institute study last week that said commercial real estate is expected to suffer its worst year since the recession of 1991-1992 with falling property values, vacancies rising and developers forced to sit on the sidelines as capital remains scarce and lenders struggle to right themselves from the credit crisis.
“It’s no surprise that 2009 will not be a good year for real estate development or investment,” said Stephen Blank, ULI’s senior resident fellow for real estate finance in a prepared statement. “There is no escaping the minefield of the credit crisis and the broken financial system. And there’s no quick fix.”
