Zoll Medical’s recent 155,000-square-foot lease at 269 Mill Road in Chelmsford is among the deals that have helped pick up the suburban commercial real estate market.

[Editor’s note: This is the second of a two-part series examining the high vacancy rates in the Massachusetts office market. Last week, Part One focused on the Boston leasing market, while this article looks at the suburban markets.]

While Boston’s central business district struggles with climbing vacancy rates, a trend some experts predict will worsen and linger into 2004, things are looking up in the Boston suburbs, according to some industry watchers.

Some third-quarter numbers show a reduction in vacancy rates within a variety of suburban markets, a situation some industry watchers say may translate into positive net absorption along the Interstate 495 and Route 128 West corridors during the fourth quarter.

“This would be the first time in two years or more,” said Robert Richards, president of Richards Barry Joyce & Partners in Boston.

According to Richards Barry Joyce’s third-quarter market report, direct vacancy rates in the Interstate 495 market dropped from 14.16 percent to 12.62 percent while overall vacancy decreased from 26 percent to 24.02 percent.

Richards credits a string of significant deals just now hitting the suburban market with the upswing that separates it, at least in terms of current momentum, from the current situation in the Hub. Zoll Medical in Chelmsford, with a 155,000-square-foot lease, and SynQor, with a 102,000-square-foot lease in Boxborough, represent two of the recent deals that have made a difference.

While downtown Boston landlords are expected to face climbing vacancy rates into 2004 and the Cambridge market remains stagnant, the I-495 and Route 128 markets are the brightest spots for growth.

“It’s the best news we have,” Richards said.

While some industry watchers peg the third-quarter vacancy rates for Boston’s central business district at around 13.7 percent, the same numbers in the suburbs range from 13.6 percent in the inner suburbs – Charlestown, Watertown, Allston/Brighton and Quincy – to 29.8 percent in the I-495 corridor. But while the downtown vacancy rates are expected to worsen, vacancy rates in the suburbs should decrease, experts say.

Some industry watchers attribute the difference, at least partially, to an increase in downtown construction vs. very little activity in the suburbs.

The suburban market, enclosed by Route 128 and I-495, became a booming hub for technology companies in the 1990s but when the bubble burst in 2000 and dozens of firms crumbled or drastically downsized, vacancy rates that once dipped below 5 percent suddenly jumped above 30 percent. While that rate continues to shrink, some industry watchers are hesitant to say that the suburbs are on their way to a full recovery.

“It’s still volatile and there’s still a chance for more bad news,” said Michael Frisoli, a partner with Richards Barry Joyce. “There are still a fair amount of companies that are still struggling in this market.”

Long Road Ahead

Brendan Carroll, research manager at the Boston office of Grubb & Ellis, predicts that the submarkets will experience a drop in vacancy over the next few quarters as an uptick in the economy translates into new jobs and expanding companies. But, Carroll warns, there’s a long road ahead – 12 million square feet of absorption must take place before the suburbs reach the 10 percent vacancy rate that would signal the market has fully recovered and reached equilibrium.

Barbara Elia, senior vice president at the Boston office of the Trammell Crow Co., said that most of the lease activity in the suburbs was generated by lease expirations.

Some of the recent suburban deals include two lease renewals totaling almost 40,000 square feet at Wellesley Office Park in Wellesley. The eight-building, Class A complex is owned, leased and managed by Equity Office. Merrill Lynch renewed its lease for 26,631 square feet and Northwestern Mutual Life renewed its lease for 12,470 square feet.

New Boston Fund also sold a three-story office building in Stoneham to Everest Partners for $6.25 million. The 50,648-square-foot Class A building sits on almost two acres of land off of Interstate 93.

Despite the activity in the suburbs, Robert Kasvinsky of the Boston office of Spaulding & Slye said that most of the recent deals have been lease renewals and few transactions represented new tenants and actual growth. As a result, landlords are pursuing a small pool of tenants and suburban asking rents for office space decreased by $2.40 per square, falling to levels not seen since 1997, he said in his third-quarter eReport. Kasvinsky warns that availability may increase slightly at the end of the year, when two uncommitted speculative buildings totaling 371,000 square feet will enter the market in the fourth quarter, especially if hiring remains at low levels.

“Realistically, our problem is the enormous 36 million square feet of office space available at the end of the third quarter,” Kasvinsky said about the Greater Boston office market as a whole. “We’ll need an unforeseen surge in office employment to produce nearly 11 million square feet more in net absorption to achieve an equilibrium availability rate of 13 percent, when rental rents could begin to rise. While this may occur sooner in some Boston submarkets, in Cambridge or perhaps Route 128/Mass. Pike, overall we still have a long way to go to narrow that gap.”

Here’s a quick look at the other submarkets, according to Kasvinsky’s report:

• The Cambridge market experienced positive absorption with companies moving into new lab buildings. According to Kasvinsky, 1.02 million square feet of space in new and rehabilitated buildings has been completed and is now 91 percent occupied.

• Availability in the industrial market increased 2.5 percent to 18.6 percent, but Kasvinsky says that the combination of new space and slugglish activity due to lack of job growth means that the availability rate will increase. In the meantime, rental rates will continue to slide.

• Availability in the research and development market was steady at 33.9 percent and has remained in the low 30s over the past four quarters, according to Kasvinsky.

“Statiscally, third-quarter office data improved somewhat for Boston and Cambridge but not the suburbs, as a result we will probably bounce along the bottom over the near term,” he said.