Cushman & Wakefield successfully marketed 55 Fairbanks Blvd. (above) in Marlborough this year and is said to have found a buyer for the 3Com office complex in the same city, with Berwind Property Group of Pennsylvania reportedly about to acquire the sprawling corporate campus.
Massachusetts joined most of the nation in turning back the clocks an hour last weekend, but the Bay State’s office market appears to have gone substantially beyond that, with the sector’s lingering woes beginning to resemble the dark days of the early 1990s. The comparison is especially striking in the outer suburbs, where see-through buildings and empty parking lots are casting an ominously retro feel throughout the MetroWest region and along the Interstate 495 corridor.
“It’s becoming very similar to the market we saw out there 10 years ago,” said Cushman & Wakefield New England President Robert E. Griffin Jr. While office vacancy rates have not hit the debilitating 40 percent levels incurred in the previous recession, Griffin warned that conditions are such that it could be another 36 months before I-495 enjoys a recovery of any real merit.
“I’d be very conservative in that period of time,” said Griffin, who nonetheless predicted that the entire suburban market will eventually rebound as strongly as it did following the 1990-1991 crash. Investor interest has clearly tailed off in the suburbs during 2002, he acknowledged, but Griffin said buyers possessing a long-term vision should not be afraid to venture into doing a suburban office deal, provided they have the tenancy in place or staying power to outlast the current downturn.
Third-quarter figures released by Cushman & Wakefield do indicate a continuing deterioration of the office market, however, with the MetroWest region now at 21.3 percent vacancy, up from 19.6 percent at midyear and dramatically above the 9.9 percent rate recorded after the third quarter of 2001.
I-495 North has seen vacancies jump from 15.6 percent a year ago to 25.3 percent, while I-495 West has risen from 18.6 percent to 29.2 percent in that same stretch. Only the tiny I-495 South office sector has seen any improvement of late, with that 1.9 million-square-foot market’s vacancy down to 19.5 percent after recording a 24.7 percent vacancy through the third quarter of 2001.
Reflecting increasingly desperate landlords who are willing to negotiate on subleases and direct space, asking rental rates have also struggled, falling in the MetroWest during the past three months from an average of $26.34 per square foot to $24.59 per square foot, according to Cushman & Wakefield. The 70.7 million-square-foot suburban market overall has seen asking rents drop from $25.85 per square foot at mid-year to $25.51 per square foot.
‘Real Pain’
Even though office fundamentals have struggled in the outer ring in recent months, some observers insist conditions there are not particularly worse there than they are in other suburban markets closer to Boston. “All of the [technology-dependent] areas are experiencing some real pain right now,” said Trammell Crow Co. principal Joseph Fallon, with buildings along Route 9 and Route 3 and even into Cambridge all suffering from the collapse of the high-tech bubble.
“There’s just too much space and too little demand,” said Fallon, although he did note there have been several substantial leases in the suburbs in recent months, including Genzyme Corp.’s 86,000-square-foot lease at 3400 Computer Drive in Westborough. Novell recently leased 100,000 square feet at Hobbs Brook Park in Waltham, while Boston Scientific took 45,000 square feet at Cochituate Place in Natick.
Even with that activity, Fallon concurred that the suburban office market is facing a difficult stretch, with the greatest likelihood of a rebound probably not until the third quarter of next year at the earliest. “The next six months are going to be a challenge,” said Fallon, predicting that, “the weather will get better quicker than the real estate market will.”
When demand does finally begin to recover, Fallon agreed that the markets in prime markets will see the improvement first, with communities such as Waltham, Burlington and Lexington expected to garner the earliest attention from tenants. “The quality buildings in quality locations will do well,” said Fallon, with Class B and C properties expected to struggle longer.
Another potential problem for the MetroWest and I-495 beltway is the possibility that large tenants such as 3Com, Sun Microsystems and Cisco Systems will drop additional space on the market, with several industry observers maintaining that the so-called “shadow space” phenomenon is probably worse than previously thought. EMC Corp., for example, has been aggressively offering excess supply to the market, including some modern properties that the data storage giant never even occupied.
Even with the problems incurred of late, investors have continued to chase office product in the outer suburbs in 2002, as witnessed by the flurry of activity in such communities as Marlborough. In that one community alone this year, Trammell Crow has brokered the sale of Lake Williams Corporate Center, while Cushman & Wakefield sold 55 Fairbanks Blvd. and is said to have found a buyer for the 3Com office complex, with Berwind Property Group of Pennsylvania reportedly about to acquire that sprawling corporate campus.
