In one of the more significant third-quarter deals for the suburban office market, First Marblehead Corp., a student loan-servicing firm, leased 136,000 square feet at 1 Cabot Road in Medford.
When it was all said and done, there was not a whole lot to say about what was done in the suburban office sector during the third quarter, with the few major lease transactions that were completed apparently having negligible impact on overall market conditions.
“It was slow,” acknowledged Cushman & Wakefield broker J.P. Plunkett, who added that the three-month stretch is typically the most unproductive of the year for office leasing. “It’s always a tough quarter,” said Plunkett.
Garry R. Holmes, president of R.W. Holmes Realty Inc. of Natick, agreed that leasing activity has been tepid, but said he was nonetheless encouraged overall by general trends in the suburbs such as lower vacancy rates and an increase in tenant requirements circulating in the area. “It’s going to be awhile before we see any rent appreciation, but we’re headed in the right direction,” said Holmes.
According to Spaulding & Slye Colliers, the 79 million-square-foot suburban Boston office inventory has a vacancy rate of 17.5 percent and availability rate of 26.7 percent after three quarters, with the latter figure including available sublease opportunities and so-called shadow space, that being space which is leased but not occupied. The third quarter also saw positive absorption in the suburbs, Spaulding & Slye stated, with net absorption of 410,000 square feet, making for more than one million square feet of net absorption for the year.
Rental rates, as Holmes suggested, have been unable to appreciate substantially in 2004. Spaulding & Slye placed the average per-square-foot suburban asking rent at $19.00 at the end of September, below the $19.47 average registered at the beginning of 2004. The figure has dropped even more dramatically during the past five years – according to Spaulding & Slye’s numbers, suburban Boston office space was averaging $28.74 per square foot at the end of the third quarter of 1999.
‘Pipeline’ Created
Broken into submarkets, the Route 128/Massachusetts Turnpike stretch had the best third quarter, with Spaulding & Slye estimating there was 313,000 square feet of net absorption. The Interstate 495 North submarket posted net absorption of 240,000 square feet, offsetting negative outcomes of 154,000 in I-495 South and an alarming 253,000 square feet in communities north of Boston. Even with the solid quarter, I-495 North still has the highest availability rate of the seven suburban submarkets tracked by Spaulding & Slye at 32 percent.
Other third-quarter office market reports were more dire than Spaulding & Slye’s, including a survey by GVA Thompson Doyle Hennessey & Stevens that concludes the suburbs posted negative absorption of 343,000 square feet, reversing three straight quarters of positive outcomes. Discrepancies between reports is typically the result of different accounting methods, such as when a given lease is recorded or the number of properties included in the statistics.
Whatever the reason for the differences, GVA/Thompson’s report said there was an increase in direct space being brought to the suburban market in the third quarter. As a result, GVA/Thompson said free rent concessions continue to be offered, especially as landlords try to retain existing tenants or attract the few large space users pursuing new deals. According to Holmes, tenants needing 10,000 square feet or less continue to dominate the suburbs.
Although most players remain on the small side, there were several notable deals consummated in the third quarter, including IBM Corp’s 200,000-square-foot renewal at Kiln Brook Office Park in Lexington. First Marblehead Corp. took down another large piece of space after inking a major lease in downtown Boston earlier in the year. In the latest deal, the student loan-servicing firm leased 136,000 square feet at 1 Cabot Road in Medford, with David W. Campbell of the Codman Co. acting on behalf of the tenant and GVA/Thompson Vice President Christopher Curley assisting the landlord, Berkeley Investments. Another six-figure lease was cemented in Waltham during the third quarter, as Symantec took 104,000 square feet at 275 Second Ave.
GVA/Thompson reports that the best value can be found in the I-495 North submarket, where per-square-foot rents are averaging $15.54, while the highest rates are being achieved in the Route 128/Massachusetts Turnpike submarket, which is averaging $20.92 per square foot. Save for the tiny I-495 South market, the lowest availability rate is 11.9 percent in the Route 128/Mass. Pike submarket. The loosest submarket is I-495 North, according to GVA/Thompson, which places the availability rate there at 19.1 percent.
Most industry observers spoken with expressed general optimism about the suburban office market as it enters the final leg of 2004, with Plunkett reporting a sudden surge of demand emerging or, in some instances, reemerging now that the summer months have ended. “The pipeline that has been created should turn into a fair amount of finished deals” by year’s end, said Plunkett. A number of lease negotiations that had been put on hold during the third quarter are being revived, he said, expressing confidence that many of those renewed searches will result in a signed lease this time around.
