Katie Kelly – ‘Better data’
Its founders promised a fresh approach when launching their commercial real estate services company last June, and Boston-based Richards Barry Joyce & Partners is now following through with delivery of a new barometer to track commercial office space.
Unveiled last week, the RBJ Supply Index does not survey the entire office inventory in Greater Boston, but rather is concentrated on buildings considered the bellwether properties of a given market, explained Katie Kelly, the firm’s director of research.
We’re not tracking every single building out there, said Kelly, likening the index to the Dow Jones Industrial Average, which keeps tabs on a select few leading stocks. Focusing on the market leaders, Kelly said, is a lot more manageable and you are going to get better data.
Criteria include the property’s location, multitenancy, age, size and achieved rents. A building leased to a single tenant for 10 years would probably be excluded, for example, because it would not provide an accurate reflection of rental rate changes during the course of the lease. The RBJ sampling also reflects a weighted cross-section of Class A buildings in each major submarket.
Using only premier Class A properties helps identify trends, said RBJ&P principal John C. Wilson, especially in an economic slump, where there is traditionally a flight to quality. It’s a meaningful statistic, said Wilson. Class A will lease first in a down market, and when you see Class A subleases [occurring] and rents going up, that’s going to be an important sign.
Speed is key in the current environment, said RBJ&P principal Robert B. Richards. Clients on both sides of the tenant/landlord aisle are clamoring for guidance on where the market might be headed, he said, with many decision-makers frozen by the meteoric changes that have occurred in the past 12 months.
Does a tenant enter discussions with the landlord today, or is it better to wait a year? he said. That’s critical information for their real estate strategy.
Other researchers concur that there is a greater cry for interpretive analysis. It’s not just giving people information anymore, but helping them understand what it all means, said Torto Wheaton Research Chief Economist Jon A. Southard, adding that is an understandable request considering the reams of data available to the public in the new millennium.
The advent of technology has enabled research to become more sophisticated as well, said Southard, noting that Torto Wheaton has more computer programmers than it does economists. Between the Internet and faster computers, it has allowed us to do a lot more than we could have four years ago, he said.
Clients are also able to access such information easier. What once would have been shipped to the customer in a bulky report can now be accessed via a CD-ROM or clicking on Torto Wheaton’s elaborate Web site. Torto Wheaton has one online database, for example, that allows clients to customize searches of a given market among 70 metropolitan statistical areas. If a client wanted to study vacancies and rental rates for Back Bay properties built between 1950 and 1970, they could do it, Southard said.
Researchers are constantly evaluating new information systems to see how they can better be applied, Southard said. At Torto Wheaton, for example, the firm is developing new tools for analysis of debt markets, as well as another that helps clients rate real estate investment trusts.
We keep getting bigger and bigger because the questions just keep coming, he said.
‘Interesting Exercise’
Beyond the data itself, another substantial element to the new RBJ Supply Index has been the input from RBJ&P brokers, Kelly said. Not only did they play a role in determining which assets should be included, the index also tracks demand in a given area, a measure which relies heavily on grassroots observations.
The index is very much a collaborative effort between what I do in research and the brokers who are in the market every day, she said. They are able to interpret the numbers and let people know what is really happening.
Richards said he believes the overview would have been difficult to produce at a larger firm. In those cases, he said, it requires more layers of approval before a new formula will be accepted, especially when the company has a national presence that mandates all offices report data in a uniform manner. RBJ&P also has a compensation structure that encourages its brokers to work together, he added.
It has been a very interesting exercise in cooperation and focus, Wilson seconded. As a team trying to respond to our client, we can be innovative and make changes much faster than you can at a bigger company, and [the index] is a good example of what that teamwork can [accomplish].
The index is also flexible enough to change if need be, said Kelly, although the aim is to provide a set inventory that can be tracked on a quarterly basis. In the first issuance, the index features 57 properties in Boston, with a concentration in the Financial District. There are 13 in Cambridge, 100 in the suburban Route 128 market and 57 buildings along Interstate 495. The suburban markets are further defined, Kelly said, by regional submarkets such as I-495 South, West and North. The company is also planning to produce similar reports in the future covering laboratory and industrial space.
As for the inaugural issue of the office version, the RBJ Supply Index reveals some interesting trends during the past year. In Boston, for example, the index reports that the Hub’s direct vacancy rate has increased from 5 percent at the end of 2000 to 6.4 percent by year-end 2001. Direct and sublet vacancy showed even more of a slump, jumping from 5.5 percent to 9.9 percent. Asking rental rates – which Kelly said is a better measure than average rental rates – fell from $56.29 per square foot to $47.67 per square foot.
Across the river in Cambridge, vacancies are expected to flatten out in the first quarter of 2002, according to the index. If so, that would be a substantial improvement compared to the freefall seen in 2000, when vacancies ballooned from 0.18 percent to an alarming 14.6 percent. That was exacerbated when sublease space was added, with the index showing direct and sublease vacancies up from 1.3 percent to 22.9 percent.
RBJ&P anticipates that rental rates will continue to drop in Cambridge, even though demand is expected to be up this quarter. The market has seen rents fall from $47.42 per square foot last year to $38.70 per square foot.
There is little positive to be found in the suburbs, with RBJ&P anticipating that rents will slip further in the first quarter, while vacancies will continue to rise and demand will remain flat.
