This facility at 12 Elizabeth Drive in Chelmsford is among several properties Richard Barry Joyce & Partners is brokering for sublease in the Interstate 495 North corridor.
No matter where one looks, things are suddenly tough all over in the Massachusetts commercial real estate industry, and that certainly appears to be the case for the emerging Interstate 495 sector. After enjoying one of its best years on record, the region’s economic health has eroded quickly in 2001, with many of the high-tech companies that drove the previous growth now either completely gone or struggling to survive the lingering downturn.
“We really haven’t seen a stabilization in the market yet, and things will probably continue to [deteriorate] for a while,” Richards Barry Joyce & Partners broker Brian McKenzie said last week, adding, “I think it’s going to get worse before it gets better.”
According to third-quarter figures supplied by the Boston-based real estate services firm, I-495 North and I-495 West have both seen vacancies increase as the year has progressed, while rental rates are headed in the opposite direction. The 14 million-square-foot I-495 North district, which runs between North Andover and Boxboro, now has an 11 percent vacancy rate.
Compared to the crash of the early 1990s, a low double-digit vacancy might be considered relatively healthy, but the figure is up substantially from the 8.3 percent level registered after the first quarter. Since the third quarter of 2000, average asking rental rates for I-495 North have fallen from a record high of $32 per square foot to between $22 and $25 per square foot.
RBJ&P is brokering several properties for sublease in the I-495 North corridor, including 10 and 12 Elizabeth Drive in Chelmsford. Sycamore Networks left behind a 36,000-square-foot hole at 12 Elizabeth Drive, while Catalog Ventures departed from 10 Elizabeth Drive to relocate to a new property in Uxbridge.
McKenzie expressed long-term optimism for the I-495 market, attributing that outlook to a more diversified economy and the area’s recent strides in establishing itself as a viable corporate address. Fueled by the optical network and high-tech industries, such markets as Chelmsford, Lowell and Westford have welcomed a slew of high-level technology and engineering companies to the region in recent years, including ENSR International, GenRad, Lotus and Nortel Networks.
‘Standing Still’
At the same time, McKenzie also acknowledged that traffic from potential occupants has been thin at both Elizabeth Drive properties, mirroring the regional malaise. “We’ve seen very limited tenant activity in terms of showings,” he said. Indeed, activity is so torpid that McKenzie said it is difficult to even gauge what market rents are because so few deals are being signed in the current environment. The only deal of note in that area for the third quarter was a 68,000-square-foot sublease by Converse at One High St. in North Andover.
The I-495/Massachusetts Turnpike submarket has seen its own share of woes this year, with Spaulding & Slye Colliers reporting negative absorption of 643,000 square feet in 2001, including -80,000 square feet in the third quarter. Although Spaulding & Slye lists the current vacancy rate for that 10.6 million-square-foot market at just 7.1 percent, the availability rate of 15.9 percent is seen as more alarming.
Rental rates in I-495/Mass. Pike are down between 10 and 15 percent, according to Hughes Properties Corp. President Scott R. Hughes. Landlords are being aggressive in other ways as well, he said, including offers of free rent and higher tenant improvement allowances.
“Any good prospect is going to be wooed very heavily by property owners,” Hughes said. “We have some good credit tenants out looking, but they aren’t plentiful, so when you see them, you definitely have to put your best foot forward.”
Research by RBJ&P puts the vacancy rate for I-495/Mass. Pike at 14.9 percent, with most leasing deals for the quarter limited to 15,000 square feet or less. The lack of volume could bode trouble for new office buildings about to come on line, including 136 Turnpike Road in Southborough, an 80,000-square-foot building, as well as the 116,000-square-foot Solomon Park in Marlborough. Both properties have had few, if any, deals signed to date.
Already saddled with a 17.5 percent availability rate, I-495/Mass. Pike is expected to see additional space flood the market over the near term, with users such as Lucent, EMC, 3Com and Compaq all continuing to reduce their real estate holdings. RBJ&P puts the current asking rents in the $21 to $25 per-square-foot range, compared to rates of $26.50 to $31 per-square-foot seen in the first quarter.
Thanks to the presence of more traditional companies and limited dot-com exposure, I-495 South has not seen a dramatic slippage of activity in 2001, with RBJ&P posting a 9.3 percent vacancy rate for the third quarter. Rental rates have remained consistently in the $15.50 to $19.50 per-square-foot range. Overall, I-495 South is more of an industrial market than office, with just 1.9 million square feet of office space and an estimated 11 million square feet of industrial supply.
Cushman & Wakefield broker Thom Powers described I-495 South as having “not a lot of activity, but not a lot of trouble,” although the lack of deal velocity appears to be getting more pronounced.
“Everyone is standing still right now,” said Powers, noting that some potential leases in progress have been held up recently, most likely due to the Sept. 11 terrorist attacks.
About the only action in the area has come from the industrial/warehouse side, with C&W having brokered a 95,000-square-foot build-to-suit for Champion Exposition Services in Middleborough and Barrett Warehouse taking over all of 15 Freedom Way in Franklin. The former Circuit City distribution property has just under 260,000 square feet of space.
