What, them worry?

Despite a sudden surge of office space in the development pipeline, speakers at a CB Richard Ellis/Whittier Partners program last week expressed optimism that the economic boom will continue long enough for tenants to consume the forthcoming surge of supply. During his presentation at Boston’s Meridien Hotel, CB/Whittier broker David E. Fitzgerald insisted that recent upheavals in the stock market and the Hub’s dependence on the financial services sector are not reasons to be overly concerned about the future.

“We don’t see trouble ahead,” Fitzgerald told the audience. “We really don’t.” CB/Whittier estimates there is currently 4.5 million square feet of office space underway or in the planning stages, including such major Boston projects as One Lincoln St. (1.04 million square feet); Seaport Center (1 million square feet); and 131 Dartmouth St. (365,000 square feet). But Boston has been averaging 1.3 million square feet of absorption annually over the past three years, and the first quarter of 2000 had an amazing 950,000 square feet of absorption, three times the amount typically seen for that period.

Tenant demand is currently at 4.7 million square feet. Even in the worst conditions, CB/Whittier forecasts a vacancy rate of 7.7 percent over the next four years, whereas a mild downturn would place the vacancy in the 4.2 percent range.

“We really don’t project a troublesome supply problem in the future,” Fitzgerald said. In contrast to the late 1980s, when many office buildings came on line empty, properties being delivered as far out as 2003 are already experiencing strong pre-leasing activity. In the Back Bay, the 935,000-square-foot 111 Huntington Ave. is 75 percent committed, while 10 St. James Ave. has leased 94 percent of its 570,000 square feet.

Michael Joyce, the head of CB/Whittier’s Downtown Brokerage Group, agreed that the pace of the market has accelerated rapidly during the past six months. During that time, for example, Fidelity Investments acquired the 900,000-square-foot 245 Summer St. near South Station, cancelled a 200,000-square-foot deal at 265 Franklin St., and has now committed to 200,000 square feet at 100 Summer St. in space being vacated by Blue Cross and Blue Shield of Massachusetts. Meanwhile, several large deals have dwindled the available opportunities for more than 100,000 square feet to just four buildings, including the John Hancock Tower, 265 Franklin St., One Federal St. and One Boston Place.

With a vacancy rate for Class A space at just 0.7 percent, Joyce said rents have spiked up dramatically, increasing by 20 percent since the beginning of the year alone. The sliver of Class A space – about 210,000 square feet available in a 30 million-square-foot market – has driven rents into record levels, with Rowes Wharf now quoting a $77 per-square-foot asking rate for a 6,000-square-foot opening.

“The question we keep asking ourselves is, ‘How high can rents go?'” Joyce said. He then answered his own query by predicting the Hub will soon top the $80 per-square-foot mark for monthly office lease rates.

Transient Tenants
Among the most significant changes seen during the past year, according to Joyce, is the migration of traditional downtown tenants to alternative locations, driven largely by the aforementioned rental rates. Law firms have been especially transient, with Palmer & Dodge and Holland & Knight both announcing moves to the Back Bay, while Nutter, McClennen & Fish and Foley Hoag & Eliot opting to depart for the Seaport District.

“This is a very big step for the industry, and it has started a trend of moving from the corner of Main and Main,” Joyce said.

Another outgrowth of the tight market has been growing tensions on both sides of the leasing table, with Fitzgerald noting that tenants are looking for lease flexibility and limited security deposits, while landlords are using their solid position to drive up rents to historic levels while being increasingly stingy on tenant improvements and other allowances.

“We’ve never seen a polarization between landlords and tenants as we can see today,” Fitzgerald said.

Also making an appearance at last week’s overview was Boston Redevelopment Authority chief Mark Maloney, who said during his keynote speech that the “office space boom is spectacular,” adding that, “it shows what a good job my boss, the mayor, is doing.”

Maloney also repeated his commitment to bolstering the BRA’s planning capabilities, announcing the appointment of administration member Kathy Kottaridis as director of economic development and BRA veteran Linda Haar as the agency’s director of planning and development.

“The BRA is going to be substantially about planning,” Maloney said.

On other fronts, Maloney asked audience members to support the city’s efforts to increase linkage payments for new development, said the development of the Boston Garden site at North Station “is beginning to be on the radar screen,” and acknowledged that his agency is attempting to alter the controversial Memorandum of Understanding which appears to direct the majority of public funds generated by development of the Seaport District to residents of the abutting South Boston neighborhood.

Maloney, however, insisted that the city wants to “clarify” rather than change the memorandum, a document which has drawn criticism from other neighborhoods.

“The spirit of the Memorandum of Understanding is not a bad spirit,” Maloney maintained. “We’re not saying it should be thrown away in any way.”