WILLIAM P. BARRACK
‘Bad news behind’
In assessing the Greater Boston office market, there is perhaps only one positive outcome concerning 2002 – it’s finally over.
Although conditions were actually far worse in 2001, the past 12 months have proven to be a difficult stretch nonetheless for office landlords, with Spaulding & Slye Colliers’ year-end statistics indicating continued backsliding of fundamentals in most markets. While there were pockets of activity, including 750,000 square feet of net absorption in East Cambridge, most areas in and outside of Boston saw vacancies continue to increase and rents falling ever downward.
Overall, the 146 million-square-foot Greater Boston office market had negative net absorption of 2.92 million square feet in 2002, a troubling figure despite being a fraction of the 8.02 million square feet of negative absorption suffered in 2001. Spaulding & Slye also places the vacancy rate currently at 13.2 percent, up sharply from 8.7 percent at year-end 2001, while the availability rate has increased from 17.7 to 22.3 percent in that time.
“It was difficult [in 2002],” acknowledged Spaulding & Slye principal William P. Barrack, who covers the Boston office market for the firm. But Barrack also maintained that the city actually began its long road to recovery in 2002, noting that two of Boston’s six submarkets enjoyed positive absorption for the year, with Charlestown up by 135,000 square feet and the South Boston Waterfront in the black by 387,000 square feet.
Unfortunately, some of that upside was at the expense of the Financial District, with the relocation of the Foley Hoag law firm to the World Trade Center complex in the South Boston Waterfront district contributing to 1.32 million square feet of negative absorption in the traditional business center.
‘Good Sign’
Even with that blemish, Barrack said there has been a rebirth of leasing volume in the Hub in recent months, including significant agreements at such properties as 100 Summer St., One Boston Place and One Beacon St. “Deals are getting done, and that’s a good sign for the market,” Barrack said.
The velocity appears to be carrying over into the New Year, added Barrack, whose firm estimates there are 188 companies currently seeking space in Boston, with those firms accounting for 5.2 million square feet of demand through 2006. In some instances, Barrack said companies are exploring the market earlier than they might normally, with a sense that landlords are increasingly willing to negotiate terms in favor of getting a deal completed or renewing a valued tenant.
Just how desperate landlords are is unclear at present, Barrack said, but he said there are also a number of tenants who are being driven by renewed confidence in the economy, although they are often looking to downsize their current space allocations. Overall, Barrack said he anticipates a flat year in 2003. “We think the majority of the bad news is behind us,” he said.
The same may be true in Cambridge, with the strong showing in East Cambridge helping to make up for negative trends in that city’s Alewife and Harvard Square/Massachusetts Avenue submarkets. For the year, Cambridge saw vacancy rates rise from 9.4 to 13.3 percent, while the availability rate grew from 20.5 to 22.1 percent.
Suburban Boston bore the brunt of the office market problems in 2002, with Spaulding & Sley reporting 2.31 million square feet of negative absorption for the inventory of 76.7 million square feet. Only the South submarket finished positive for the year with its anemic 78,000 square feet of net absorption. Battered by an increasing supply of sublease opportunities, suburban availability rates range from 15.6 percent in the tiny Interstate 495/South submarket to 30.9 percent along I-495 North.
