As of the mid-year mark of 2004, real estate research analysts announced Greater Boston vacancy conditions generally favoring the tenant in lease negotiations. For instance, Richards Barry Joyce & Partners tracked 19.8 percent vacancy in the 172.9 million square foot market. However, a tenant attempting to find office space in the vicinity of Harvard Square will find something that seems counter to near 20 percent vacancy conditions: only one vacant space of greater than 10,000 square feet. In the Harvard Square area, a prestigious address favored by knowledge-based companies, the vacancy is not 20 percent, but closer to 5 percent, and tenants will not generally feel they are driving negotiations. Harvard Square is not the only area with low vacancy rates. A user looking for Class B space in the Back Bay finds a 6.8 percent vacancy rate, and a user looking for “premium view” space, generally defined as space above the twentieth floor of a Class A tower in the Central Business District or with a uniquely pleasant view (such as a low floor direct view of the public garden or Boston Harbor) will also find their vacancy rate to be in the mid single digits. However, a user looking for Class A space in the Interstate 495 North market will find 45 percent vacant conditions.
Market dynamics since 2001 have presented many landlords with significant challenges in attempting to attract and keep tenants. They have also presented those involved with market research with an equally daunting task in attempting to understand how to provide those in the industry with meaningful research that can serve as the basis for decision making. While the overall market information provides an interesting brief summary of the market as a whole, its meaningfulness is really more economic than actionable. In order to disseminate information that can serve as the basis for decisions, it is necessary for participants to focus on submarket research.
Unique Opportunity Provided
After all, commercial real estate market research is not meant to be done simply for the sake of doing research. The goal is to have pertinent information readily available upon which to base or support decisions, such as where to re-locate a business, have a first location for a biotech startup, or purchase a building as an investment. From submarket to submarket, material differences in vacancy rates, lease rates, and capitalization rates paid will vary based on the industries prevalent with those areas.
A quick scan of the numerous Boston, Cambridge and suburban submarkets tracked by Richards Barry Joyce & Partners shows that the Greater Boston market is a collection of highly unique areas. The tenants in these unique areas can appear to be largely grouped by industry, and very few owners participate in any more than one or two submarkets. Because of these dynamics, flight to quality issues and industry specific issues affect submarkets differently. The “tech boom” led to near zero vacancy conditions in East Cambridge in 2000, and the “bubble burst” that followed opened up a 30 percent vacant hole, a dynamic that also affected Waltham.
From a tenant perspective, one of the more actionable pieces of information is a contiguous size block analysis, the number of available choices a tenant has based on their preferences and required size. For example, the 10,000 square foot user looking for space in Harvard Square could be very easily accommodated in Waltham (46 choices) and would be just as welcome in the Interstate 495 North submarket (67 choices).
High-level analysis of the entire Greater Boston real estate market remains vitally important, particularly for gauging the health of relevant economic dynamics. However, as examples of varying vacancy rates of areas show, submarket specific research will continue to emerge as the market participant’s best source of actionable and relevant information.
