Hallelujah. It is hardly the second coming the world has been waiting on, but a surge of office subleasing opportunites nonetheless is answering the prayers of companies heretofore shut out by the dearth of space in Greater Boston. With the high-tech sector increasingly in disarray, leaving a stream of dot-com wreckage along the information superhighway, many firms are seeking to lease all or a portion of their offices until the current storm of uncertainty subsides.

Joseph Sciolla of Cresa Partners, for example, said his real estate services firm is getting daily missives from companies looking to sublease excess quarters. Sciolla, who represents tenants, had predicted earlier this year that many high-tech companies would begin to return space to the market. With Nasdaq suffering losses on a daily basis due to the high-tech meltdown, Sciolla’s prognostication now appears to be coming true.

“Sixty or 90 days ago, you had to drill down pretty deep to find sublease space, but now the gates have really opened up,” he said. “It’s still a landlord’s market, but some of the helium has come out of the balloon.”

Broker Karyn McFarland of McFarland & Finch concurred with that outlook, reporting that she has seen numerous subleasing deals cropping up throughout downtown Boston recently. While she declined to discuss any specific deals, sources said several companies will offer up subleases in the Hub before even moving into the space. Xtraprise is offering a portion of its space at 321 Summer St. in South Boston for sublease, as are Nextera and Context Integration, the two firms that have committed to leasing all of 343 Congress St. in the Fort Point Channel district. In addition, Breakaway Solutions is said to be giving up 8,000 square feet at the World Trade Center, while Internet Capital is surrendering an estimated 20,000 square feet at One Boston Place. Other sources said Viant Corp. will look to sublease a portion of the 90,000 square feet it is taking at 100 Summer St. in the wake of that high-tech firm’s recent hammering on Wall Street.

“A lot of people are concerned,” said John Hennessey, a principal with Thompson Doyle Hennessey & Everest in Boston. Some clients are now taking a wait-and-see approach, he added, hoping that the difficulties will result in a lessening of landlord control over negotiations. While Hennessey questioned whether that will happen for new technology companies, he said it is possible good-credit tenants could ultimately benefit from the upheaval.

Nextera has retained Michael Brown of Trammell Crow to sublease an entire 25,000-square-foot floor at 343 Congress St., which is being renovated into office space by the Intercontinental Cos. of Brighton. Calls to Brown and Nextera officials were not returned by Banker & Tradesman’s press deadline, but sources insisted that the space, representing half of Nextera’s lease, is on the market.

Trammell Crow broker John Barry would not comment on 343 Congress St., but he did acknowledge that the recent stock market difficulties have impacted both subleasing and the office market in general. “There’s just a sense among us in the trenches that the velocity has fallen off,” said Barry, who focuses on downtown Boston. “It does seem like the phones are not ringing as much, and there are a few more options to consider.”

Robert B. Cleary Jr. of Meredith & Grew agreed that subleasing is on the increase, but said it often is not a case of downsizing so much as a situation where companies previously have scooped up excess space in anticipation of future growth needs. There has been a concern that “you’re not guaranteed of getting that space in 36 months, so you’d better grab it now,” Cleary said. By letting it out to another tenant over the short term, the company can recoup some of its investment, Cleary said, while still having a place to expand into once the deal runs its course.

Equally unconcerned is David Richardson of McCall & Almy. Despite acknowledging that “there is a little bit more [subleasing] occurring,” Richardson noted that the levels are nowhere near those found in the early 1990s, when upwards of 700,000 square feet of sublease deals helped to exacerbate the city’s glut of new office space. Also, he said, the deals tenants are offering usually do not represent a deep discount to that being made available by the building owners themselves.

“I don’t think it’s really earthshattering,” Richardson said of the recent activity. “Certainly the landlords aren’t panicking.”

Short Supply
Indeed, even with 3 million square feet under construction, office space remains at a premium in the Hub, with current estimates placing the new supply at 80 percent pre-leased. The city’s vacancy rate is less than 2 percent, according to Spaulding & Slye Colliers, making the addition of any new space welcomed by tenants and brokers alike.

Exemplifying the demand, Equity Office Properties reportedly is offering a block of prime space at 75 State St. for lease starting at $100 per square foot. The firm is seeking a similar price at nearby One Post Office Square. Meanwhile, the Abbey Group’s Landmark Center project near Fenway Park is in the final stages of leasing 670,000 square feet at that site, with Cleary announcing that Harvard Medical School has agreed to take 45,000 square feet of office space that previously had been marketed for retail use. The building has just 19,000 square feet remaining, Cleary said.

Meredith & Grew was also the broker for the first deal cemented at Independence Wharf. The 336,000-square-foot former warehouse is being converted to Class A office space by Modern Contintental Enterprises, with a planned opening slated for next August. MCE vice president Robert Shepard said last week that the company has had more than 1 million square feet of showings in the last 60 days, adding that the firm is now negotiating with three tenants who could lease up to 80 percent of the 14-story building.

Although Wellington Management recently backed out of its plan to serve as anchor tenant of the building, MCE has scored the Duane Morris & Heckscher law firm as the first tenant, with that Philadelphia-based operation committed to 28,000 square feet. Meanwhile, a shared-office company known as Regis has signed a letter of intent for “multiple floors,” Shepard confirmed, although he declined to discuss specifics and stressed that a lease has not yet been inked. Even with sublease space on the rise, Shepard said MCE remains confident in the project.

“The first one is always the toughest, but we’re pleasantly surprised at the continued activity in the building,” said Shepard, whose firm is using Trammell Crow as exclusive leasing agent.

Stock Market Uncertainties Shake Loose Sublease Space

by Banker & Tradesman time to read: 4 min
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