Having just experienced 1.5 million square feet of positive absorption in the second quarter of 2005, the Greater Boston commercial office real estate market is clearly in the second year of a recovery. Thus far, the recovery has consisted of six consecutive quarters of meaningful positive absorption and an increase in tenant use of real estate by 6 million square feet. What is also clear is that this current expansion is favoring certain areas over others, as tenant choice shifts and growth is allocated to specific areas.

Cambridge and the suburban submarkets account for 62 percent of the Greater Boston area’s commercial office market inventory, though they combine for 83 percent, or 5 million square feet of the positive absorption in the region over the past six quarters. 2.3 million square feet of the suburban submarkets’ (excluding Cambridge) 4.1 million square feet of positive absorption took place in just five towns which account for only 28 percent of the office inventory in the suburbs. Following is a brief profile of Cambridge and the five suburban towns that have driven Greater Boston’s positive absorption over the past six quarters.

Cambridge

Cambridge’s 13.1 million square feet of office space makes up 8 percent of the Greater Boston area’s total, though it has captured 14 percent of the greater market’s absorption. During this period vacancy has plunged from a 23.4 percent peak to its current 16 percent level. Most importantly, 606,000 square feet of Cambridge’s 870,000 square feet six-quarter absorption total occurred in the East Cambridge submarket and interest has improved dramatically in the large Class A market. Cambridge is also home to 56 percent of the Greater Boston’s construction pipeline, though this space is 92 percent preleased. Cambridge has been successful in leveraging its position as a global center for intelligence and should continue to attract startup activity, as well as intelligence-intensive operations of larger global organizations.

Waltham

It may not be surprising that the town with the largest suburban commercial office inventory would also attract the suburbs’ heaviest dose of positive absorption. However, the 653,000 square feet of tenant expansion and new occupancy that has occurred over the past six quarters has dramatically exceeded the expectations for a recovery in the town, which was 30.4 percent vacant only six quarters ago. Demand has been so consistent that five of the past six quarters have exhibited positive absorption and vacancy rates should be well below the current 21.4 percent levels over the next four quarters. Demand is not only coming from the town’s traditional technology tenant base, but from biotechnology companies of all sizes, which are increasingly turning to the Waltham/Lexington area for office and research lab space; recent new bio tenants include BG Medicine, Dynogen, Ounce Labs and Oscient. Reed Elsevier also became a new local tenant, taking 90,000 square feet, in a move from neighboring Newton.

Woburn

Though Woburn’s 3.5 million square feet of office space only account for 2 percent of Greater Boston’s commercial office inventory, it attracted 8.2 percent, or 496,000 square feet of the positive absorption that has occurred in Greater Boston over the past six quarters. The influx was largely represented by Raytheon, in their occupancy of a 450,000-square-foot, two-building complex at MetroNorth Corporate Center in 2004. The complex, which had been built for use by Genuity in 2000, sat vacant as economic conditions forced the company to delay expansion plans indefinitely. Nearly all of the absorption activity in Woburn has occurred within walking distance of the town’s two MBTA commuter rail stops, and are consistent with a dynamic observed by the newly released Richards Barry Joyce & Partners Smart Growth Indicator: that commercial office properties within a 10 minute walk of transit stations are outperforming their non-accessible counterparts.

Burlington

The town with the second-largest inventory of commercial office real estate was for a while distinguished as being one of the few towns in Greater Boston with a vacancy rate over 30 percent. In the second quarter of 2003, the Burlington office market was 34 percent vacant, though seven of the eight quarters since have brought increased tenant occupancy to the town, which is now only 24.2 percent vacant. The remaining relatively high vacancy rate continues to position Burlington as a relatively low cost Route 128 alternative. It may be argued that this pricing discount has driven the absorption, mostly by smaller tenants over the past two years. The heaviest absorption came in the first quarter of 2005 when six buildings experienced over 30,000 square feet of positive absorption and Scansoft, Concentra Integrated Services, Acme Packet Co. and Z Corp. accounted for nearly 200,000 square feet of absorption alone. With 771,000 square feet of vacant Class A space remaining, Burlington may remain a low cost alternative of choice well into 2006.

Marlborough

This town was at the forefront of the current recovery in the first quarter of 2004 as Cytyc drove a quarter of the 321,000 square feet of positive absorption. During that quarter, the town alone accounted for more than half of Greater Boston’s progress in absorption. The six-quarter total for Marlborough of 403,000 square feet shows that the town continues to contribute to a market recovery, though progress has lagged slightly of late. The vacancy rate, which dipped dramatically during the first half of 2004 from 31.8 percent to 24.5 percent, has remained in that general range for the past four quarters. However, tenant activity is expected to pick up as demand spills over from the 7.9 percent vacant neighboring Framingham/Natick area, a phenomenon witnessed this past quarter as Framingham-based Staples Inc. signed a lease for 23,000 square feet in Marlborough. Additionally, tenants will be attracted to the relatively modern, high quality of office space in the region; the average size-weighted age of a Marlborough office building is 15 years while the average is 23 years along Route 128.

Framingham

The most remarkable thing about Framingham’s recovery is that conditions weren’t all that bad before it began six quarters ago. However, six quarters and 301,000 square feet of positive absorption have lowered the vacancy rate here to 5.1 percent, a range where tenant choice is extremely limited. Tenants over 25,000 square feet in size have no choice and most buildings have no vacant or available space at all. Framingham is home to three Fortune 500 companies, and may spur absorption in adjoining towns with higher vacancy rates that can accommodate new tenants. Already, a requirement by Fortune 500 tenant Staples was filled in Marlborough, as they were unable to find a suitable 23,000-square-foot space in town.

While the towns above have contributed dramatically in the early stages of the current turnaround, a large amount of empty space remains, more than seven million square feet in the towns above alone. We expect, however, to see a sustained Greater Boston market recovery and continued positive absorption market-wide.