Reservoir Place in Waltham is among the prominent local properties that currently has office space available for lease.
The atmosphere for commercial real estate did appear to improve slightly during the first six months of 2003, but mid-year figures released by Richards Barry Joyce & Partners indicate that the industry still faces a long road to recovery. While several significant office and biotech leases have been inked of late, RBJ&P’s overview nonetheless revealed an increase in vacancies in most markets, and continued problems for the struggling office sector, including an alarming 2.4 million square feet of negative absorption in the suburbs.
“We’re all looking for positive signs, but it’s hard to identify what’s real and what’s not with respect to activity and true growth,” RBJ&P principal John Barry told Banker & Tradesman last week. “It has been a good six months … but there are still a lot of [obstacles] to work through.”
Focusing on the downtown market, Barry said he is seeing increased numbers of tenants exploring the market, but added that many are companies with lease expirations running out to 2007 or 2008. Whereas such firms would normally launch their search within 12 to 24 months of the expiration date, Barry said the dour climate has forward-thinking bargain hunters combing the market for desperate landlords.
“It’s hard to be a perfect market-timer,” said Barry, explaining that some landlords will be more motivated than others to accommodate a long-range requirement. Most of the deals which were completed in the first half of 2003 appeared to involve short-term needs, such as Bain & Co. committing to 131 Dartmouth St. for 115,000 square feet.
RBJ&P itself represented Northland Investment Co. in its renewal of Goulston & Storrs to 100,000 square feet at 400 Atlantic Ave. The well-known law firm had done an extensive market search before deciding to stay put, although it did also lease a substantial portion of space at Rowes Wharf, located adjacent to 400 Atlantic Ave.
Even with the Bain & Goulston deals, Boston still saw 771,000 square feet of negative absorption in the first half of the year. On the plus side, that number trickled to less than 50,000 square feet in the red during the second quarter. RBJ&P places the Boston office vacancy rate at 10.4 percent and the availability rate at 17.4 percent. The biggest hope now is that the erosion is finally nearing an end, said Barry, expressing a sense that Boston’s office market is now hitting the bottom of the cycle.
‘Land of Opportunity’
Across the river in Cambridge, biotech leasing fared better than the office sector, which continued to falter after Cambridge had begun the decade as one of the country’s top markets. From virtually no space three years ago, the Cambridge office vacancy rate is now an alarming 16.9 percent, while the availability rate has soared to 24.2 percent. There has been 287,000 square feet of negative absorption to date in Cambridge this year, according to RBJ&P, the bulk of which has occurred in the second quarter.
“It feels like the market is trying to turn around and correct itself, but that is not being borne out in the numbers yet,” said RBJ&P President Robert B. Richards Jr., a specialist on the Cambridge market. “Right now, it looks like the recovery is not going to come that quickly.”
As bad as Cambridge has been, however, the worst pain at present continues to lie in suburban Boston, where RBJ&P estimates that direct vacancy has ballooned to 22.7 percent and the availability rate to an astounding 29.1 percent. That compares to 17.8 percent vacancy and 26.8 percent availability levels after the first quarter of 2003.
Among the major trends going forward for suburban Boston, according to RBJ&P, will be an upswing by corporations to acquire buildings, as well as an increase in tenant concessions by landlords. Motivated building owners will court tenants with lease expirations 12 to 18 months out longer than normal, RBJ&P is forecasting, while rent corrections also should lead tenants to consummate lease agreements after being on the sidelines for much of the past year.
In Cambridge, Richards said sublessors are continuing to drive the market, with short-term space available for as little as $9 per square foot. “Cambridge is a land of opportunity right now,” said Richards, a situation that could prompt suburban office and laboratory users to consider a reverse migration back into the city.
For all of the recent problems in the office and life sciences markets, RBJ&P itself has had a solid six months, said Richards. Along with the Goulston & Storrs assignment, RBJ&P handled the largest Cambridge deal of the year in the renewal of Tiax at the Bulfinch Cos. Cambridge Discovery Park, as well as the largest lease in the Interstate 495 North corridor. In the latter instance, RBJ&P principals John Wilson and Brian McKenzie brokered a 155,000-square-foot sublease in Chelmsford by Zoll Medical.
RBJ&P also last week celebrated its second anniversary in business. Even with the market problems during the past 24 months, the company had a strong 2002 and is already three-quarters of the way in matching its revenues of last year, Richards said.
“It has been a fantastic six months for us,” Richards said. “The market is down, but we’re clearly happy with the activity and we have a lot of interesting things in the pipeline for the rest of the year.”
