Northrop Grumman leased 80,000 square feet of space at Brickstone Square in Andover late in 2005. Defense-related companies played a major role in the success of suburban Boston’s office sector last year.
Athletic fields might not be the only place where the best offense can be a good defense, or so one might glean from the recent resurgence in suburban Boston’s office market, a sector whose recovery has been aided greatly by a run-up for military spending and emerging industries focused on national security efforts.
Evidenced by hyperactive growth from Massachusetts stalwart Raytheon Inc., defense-related companies helped the suburbs score upward of 3 million square feet of net absorption of office space in 2005 overall, and the new year shows little sign of a downturn in that arena. Having taken 100,000 square feet in Billerica in two leases last autumn in space being subleased by Nortel Networks, Raytheon reportedly is negotiating on another substantial piece of 150,000 square feet Nortel is peddling at 880 Technology Park Drive in Billerica. That building is next door to 600 Technology Park Drive, where Raytheon cemented the earlier Nortel subleases.
Meredith & Grew broker David J. Pergola, who is marketing the Nortel space, acknowledged the earlier transactions, but declined to discuss any pending agreements with Waltham-based Raytheon Inc. Several sources insisted a deal is in the works, however, although none could say exactly how much of the space – considered among the best in the suburbs – would be taken by Raytheon. One source described it as “a majority,” which would be more than 75,000 square feet.
While unable to discuss that transaction, Pergola concurred that the defense industry has been part of a three-pronged rebound seen in suburban Boston in recent months, especially in the north and northwest reaches such as Interstate 495 communities of Chelmsford, Lowell and Westford, as well as along the upper stretches of Route 128 in Lexington, Bedford, Concord and Billerica and into Woburn and Burlington. Route 128 North posted an impressive 875,000 square feet of net absorption in 2005, Meredith & Grew data indicates, while I-495 North was on the plus side by 565,000 square feet. By comparison, Pergola recalled a deficit of 3 million square feet in I-495 during 2002 and negative 1.75 million square feet that year in the Route 128 North submarket.
“Things are way up in the north and northwest,” said Pergola, who credited technology and medical device companies for assisting the defense industry in the resurgence. On the defense side, Northrop Grumman took 80,000 square feet at Brickstone Square in Andover late in 2005, while iRobot Inc. has a significant requirement for space in the northern tier as well. Another Raytheon entity in the Waltham market has been seeking new quarters in the suburbs, although some sources claimed that may be concentrated to the southern portion of Route 128.
Meredith & Grew estimated 3.05 million square feet of net absorption in suburban Boston last year, listing only the I-495 South market in the red at minus 491,000 square feet of absorption. Lincoln Property Co. offered a similar overall mark, while Spaulding & Slye put the figure at 2.3 million square feet for the year, including a boost of 411,000 square feet in the fourth quarter alone.
‘Real Growth’
Spaulding & Slye issued the suburban office market figures during its annual commercial real estate overview in Boston last Monday (see related story on Commercial & Industrial page). After peaking at nearly 30 percent in 2003, the suburban office market availability rate has dropped to 22.6 percent, Spaulding & Slye reported, further estimating that rental rates for Class A buildings jumped by 20 percent in 2005, particularly in the core Route 128 communities of Waltham, Newton and Wellesley.
In her presentation at the overview, Spaulding & Slye Managing Director Tamie Thompson said she was encouraged by the performance of the suburbs last year, enabling landlords to be more limited when offering free concessions or on doling out tenant improvement dollars. Still, she advised, it has often been a case of “one step forward, two steps backward,” as exemplified by the recent announcement of a Marlborough firm that will be giving back more than 150,000 square feet of space as a result of a recent merger.
For the most part, however, the suburban office recovery extended outward in 2005, said Spaulding & Slye Managing Director William Bailey. Albeit occasionally a case of “musical tenants,” Bailey said there was some “real growth” experienced in the suburbs last year, so much so that the chances are improving for new construction of office space in the coming year. Genzyme is pursuing one project in space-challenged Framingham, he said, while landowners along Route 128 in Waltham are increasingly rattling the development saber.
Given a lack of large blocks of space and several hefty requirements, Bailey said he believes a suitable anchor tenant might be available to kick a project off, estimating that rents need to reach up toward $40 per square foot to justify new construction. Waltham exceeded $30 per square foot in several deals last year, although Spaulding & Slye put the average asking price for that market at $25.03 per square foot at year-end. The suburban average asking rent is now $19.04 per square foot, including a low of $16.62 per square foot in the I-495 submarket.
Among the highlights in suburban Boston last year was the interest among investors, said Thompson, with several high-profile assets changing hands. Highlighted by the $272 million sale of the Bay Colony Corporate Center in Waltham, Equity Office Properties paid $55 million for 25 Mall Road in Burlington, Boston Properties acquired Prospect Place in Waltham for $63 million, and a New York investment group paid a similar price for the nearby Prospect Hill Office Park. The Route 128/Massachusetts Turnpike submarket where Waltham is located has a direct vacancy rate of just 12.5 percent, according to Spaulding & Slye, prompting the ardor among investors.
