Commercial vacancy in Boston’s Back Bay and downtown areas was at 17.5 percent as of Jan. 1.
Count Edward Ladd among those who believe that this year, a tax cut will send new money into Americans’ pockets, businesses will continue spending and low interest rates will continue to make it cheaper for individuals buying a new home.
“From everything we can see, the suggestion is that 2004 will be a good year,” said Ladd, a specialist in national and international core and active financial investment strategies and chairman of Boston’s Standish Mellon.
A panel of economists shared his and other predictions for an uptick in 2004 at the Real Estate Finance Association’s 2004 annual forecasting event last Wednesday. The association – modeling a portion of the event after the television program “Who Wants to Be a Millionaire?” – also picked the brains of almost 100 finance attendees from the Greater Boston area.
Clicking in on what looked like a clunky cousin of the remote control, 52 percent of voters said employment growth in Boston would be up by year-end, 88 percent said office rents in Boston’s central business district would remain flat or decrease and 68 percent said that investors’ yields, which are now at record-low levels, will remain the same or increase slightly.
In addition, a tallied forecast survey predicts that the highest downtown office rent per square foot will remain at $52 as it did in 2003, the highest Route 128 office rent per square foot will decrease 50 cents to an even $32 and the highest Boston condo sale per square foot will increase by $71 to $1,672.
“The big question is employment growth – we haven’t seen it yet,” said Wayne M. Ayers, chief economist at FleetBoston Financial and the principal economic advisor to the senior management of the corporation. “The past two years have been the worst job market on record. As of November, there was a 30-month consecutive decline in employment.”
Unusual Patterns
Area companies, banking on a wave of growth in the 1990s, signed leases with excess space for room to grow. The economic decline rendered the space unusable in many cases, a situation that has led to an undetermined amount of so-called shadow space on the market. Until Massachusetts experiences significant job growth, that excess space will slow down any trend toward absorption.
Massachusetts lost 176,000 jobs between February 2001 and last month. In order to reach equilibrium, or 10 percent availability, in the Greater Boston commercial real estate market, the state would need 90,000 new jobs, according to the REFA panel. REFA is a division of the Greater Boston Real Estate Board.
As of Jan. 1, vacancy in the Hub’s downtown and Back Bay areas was at 17.5 percent and in the suburban Boston office market was at 28 percent, according to data compiled by McCall & Almy of Boston.
While many economists predict an increase in job growth in 2004, some question its strength against the growing popularity of outsourcing jobs oversees.
“One hundred years ago, New England was a high-population area of the country, but that’s come down as businesses move to low-cost areas,” Ayers said. “Now, with the end of the Cold War, they’re not going south anymore, they’re going to other countries.”
Massachusetts’ high cost of living creates additional concern about the inhibitors of job growth. Massachusetts per capita income is 30 percent higher than the rest of the country while its housing prices are 160 percent higher, according to Ladd.
“I’m more concerned about foreign competition,” he said. “In China you can build a semiconductor, high-tech facility at a tiny fraction of the cost that you can here. These are not just toys or textiles, these are quality, high-tech goods and jobs.”
William McCall, president of McCall & Almy, has a different worry – mainly that the effect of recent major consolidations within the banking industry combined with the mutual fund scandal ultimately will lead to less employment.
“It’s hard to believe that mergers will lead to more jobs,” he said.
On the whole, the underlying fundamentals are improving, laying the foundation for a stronger economy in 2004, according to the panel. However, the financial market still exhibits volatility.
“Most of us are in the pattern of recognition; my concern is that we’ve never been in this position before – the patterns don’t quite fit,” Ladd said. “We’ve never been at the edge of inflation and deflation to this degree, had this amount of debt relative to the [gross domestic product] or had this amount of dependence on international capital for debt.”
But with the tax cuts well on the way, increased capital spending and exports picking up, it’s hard to see anything that will derail projections, according to Ayers.
“When you put it all together, it’s hard to come up with a pessimistic outlook for 2004,” he said.
Kristie DiSalvo may be reached at kdisalvo@thewarrengroup.com.
