Pricewaterhouse Coopers’ sublease negotiations at 125 High St. in Boston have been one of the few bright spots in the city’s office market recently.

When it comes to righting Boston’s foundering office market, leasing specialist James J. Adams maintains that one of the greatest fears for 2003 may well prove to be fear itself. While the Insignia/ESG principal is actually forecasting slight positive absorption for the Hub this year, Adams warns that a hoped-for recovery hinges on whether the local and global economies can avoid unforeseen pratfalls over the near term.

“Business abhors uncertainty, and when there is uncertainty, it disrupts the process of getting deals done,” Adams said in assessing the current office environment. The veteran broker cited the sudden collapse of the Bank of New England as hardening the downturn of the early 1990s, creating a crisis in confidence that froze decision-makers in their tracks.

In the latest environment, Adams noted that Boston has been not only rocked by the struggles of the technology sector and the related flood of unanticipated sublease space, but was hurt even more last year when established firms such as KPMG, Sovereign Bank and Fidelity Investments began dumping space. “This time last year, I don’t think many people would have anticipated the sheer amount of space Fidelity would be putting on the market,” Adams said. Now, tenants and landlords alike are assessing the surprising news late in 2002 that Boston law firm Hill & Barlow is dissolving, Adams said, potentially disrupting the market to an even worse degree. The venerable law firm is headquartered at One International Place.

“There are knowns and there are unknowns, and in 2002, more than any other year I can remember, the unknowns happened with great regularity,” Adams said.

Codman Co. principal Robert B. Cleary Jr. concurred with that notion, adding that the national and international scene also could play a role in keeping activity down in the coming months. If a war does break out, for example, or the stock market continues to struggle, Cleary said it would likely harden the malaise in the office sector.

“I do think there is some impact from the uncertainty,” said Cleary, with tenants less willing to consummate a lease and landlords more adamant about ensuring a company has the staying power to survive when negotiating a deal.

According to Adams, the Hill & Barlow collapse is leading property owners to demand greater financial security and terms when leasing space. “It has to be included in every negotiation,” said Adams. “Every tenant in the market is going to be scrutinized much more in 2003 than in the past as a prospective tenant.”

Although such demands may prove untenable to some, Adams said it also is likely to increase the stature of strong-credit companies, who are expected to be courted more ardently than any time in recent memory. “Companies that can pay the rent are going to be the beneficiaries of some terrific deals,” said Adams.

‘Stay in Place’

Another trend anticipated for the coming year will be the continued movement toward lease renewals vs. relocations. Adams said he is not only seeing a greater resolve among firms to stay put, but also a willingness to pay a premium to do so, something he also attributes to the market uncertainty.

“The simplest thing for anyone to do is to stay in place,” he said, especially during a period of economic turmoil. In addition, a landlord may be more motivated to keep a tenant for several factors, Cleary said, including the efficiencies of maintaining a stable tenant roster. Also, he noted that most existing tenants are paying above market rents, whereas a new tenant is likely looking for a lease that reflects the current downward slope in rates. A landlord may therefore be willing to negotiate a few dollars off the current rate to entice a tenant to stay put, Cleary said, without having to dip to the rate a virgin prospect would require.

Cleary said he is encouraged by the spate of significant commitments made in recent months, including Bain & Co.’s pending deal at 131 Dartmouth St. in the Back Bay, the PricewaterhouseCoopers sublease negotiations at 125 High St. and Arnold Worldwide’s discussions at 501 Boylston St. But Cleary also stressed that the leases are not completely signed, and noted that even if they are negotiated, the deals will leave behind significant gaps in tenancy at those firm’s current homes, decreasing the likelihood that the leases will lead to positive absorption.

For his part, Adams said he is hopeful Boston will return to stability in the coming year, but predicted that will only happen once the core financial services industry comes back to life. “The money is here, but it has not been coming back,” he said, while stressing that he has long-term faith that the Hub will remain the world’s second-largest money manager going forward.

One potential roadblock on the path to recovery is the excess space companies may have going forward, Adams said. Most companies plan for their future needs three to five years out, he said, but companies who made decisions in 1999 and 2000 who are now looking ahead to the next few years tended to lease space they did not need. That should lead to a reduced need for space among the larger players, he said.