The Bay State’s deteriorating economy is beginning to subside and the commercial real estate marking is showing signs of recovery, according to a new report.
Asking rates for office space continued to fall in 2009, but are leveling off. With vacancy rates climbing to 9.5 percent in Boston’s central business district and 16.5 percent in the suburbs, there is no shortage of supply, allowing tenants with solid financials to take advantage of tenant-favorable conditions, according to NAI Hunneman’s Annual Global Market Report.
Among the recent significant transactions: Verizon’s 200,000-square-foot lease at 185 Franklin St. in downtown Boston and 3Com Corp.’s 130,000-square-foot lease at 350 Campus Drive in Marlborough.
"Although the Boston market continues to slide, the rate of decline is showing significant signs of deceleration," said Michael DiGiano, executive vice president of NAI Hunneman. "If this trend of decelerating decline continues, we can anticipate the beginnings of a stabilizing market in 2010, with more sustainable growth trends returning in 2011."
The industrial market continues to trudge along as average asking rates have dropped to an average of $6 per square foot. Vacancy rates have hit their highest level since the first quarter of 2005. One significant transaction is Best Buy’s build-to-suit lease of a new distribution facility at 140 Depot Street in Bellingham, totaling 238,370 square feet.
The lack of liquidity continued to plague the investment market in 2009, according to the report. A majority of investment sales have been limited to smaller deals that can be locally funded. The multifamily market remains relatively active; one of the largest deals in 2009 was the sale of a 90-unit multifamily portfolio in Arlington for $12 million, according to the report.
The retail market has also felt the impact of the economic turmoil with the lower rental rates and significantly higher vacancy in the Downtown. Super H-Mart’s 51,000-square-foot lease at 3 Old Concord Road in Burlington is one of the few deals that were completed in 2009.
"The past year was extremely challenging for commercial real estate, and we don’t anticipate much new demand in 2010," said Jeffrey M. Finn, president and CEO of NAI Global. "We’re working with our corporate clients to help them take advantage of the current tenants’ market to reduce their long-term occupancy costs. Many tenants are able to negotiate more favorable lease terms today in exchange for a longer commitment. This ‘extend and blend’ practice is a trend we see continuing well into the next 18-24 months."
Investors who have been sidelined by economic uncertainty will see tremendous acquisition opportunities in the coming year as banks and financial institutions clean up their balance sheets and move more aggressively to dispose of commercial real estate loans and financially distressed real estate assets, said Finn.
Nationwide, office property vacancy rates are continuing to rise, and severe job losses have resulted in increasing shadow or sublease space along with tenant inducements. The national average vacancy rate for downtown/CBD Class A space reached 13.9 percent in 2009, an increase of 35 percent over 2008.
