When Palmer & Dodge took space at 111 Huntington Ave. in Boston’s Back Bay, the owners of 1 Beacon St. (above) were left with a vacancy to fill in a market already teeming with competing sublease space.

Patience is said to be a virtue, but when it comes to Boston’s office market, that trait is fast becoming a necessity as well.

A year after the Hub’s office sector began its swift and brutal fall from grace, there remain few signs that the city is even close to returning to solid ground, with most brokers reporting that potential tenants are hesitant to commit to new space in the current environment. Along with the shaky economic outlook, the reluctance appears to be driven by a belief that rents will continue to decline while the vacancy rate rises, increasing the chances for a more favorable deal down the road.

There’s not a lot of action, acknowledged Gale & Wentworth broker John B. Hynes III, who predicted that, It’s going to be a long run before this market rebounds.

One concern, according to Hynes, is the lack of expansion space required by local businesses, with most of the firms that are currently circulating the market driven largely by pending lease expirations. That essentially means that companies are merely trading one property for another when they do move, as with Foley Hoag & Eliot’s pending relocation to the Seaport District, one that will leave a large gap at the law firm’s current headquarters at 1 Post Office Square. A few blocks away, the owners of 1 Beacon St. are grappling with the hole being left behind by Palmer & Dodge’s migration to 111 Huntington Ave. in Boston’s Back Bay submarket. Similarly, Equity Office Properties has about 110,000 square feet opening up at 125 Summer St. from the Bank of Tokyo’s upcoming move to 111 Huntington Ave.

Compounding the problem is the seemingly unending parade of sublease options that are flooding both the city and suburban Boston. According to Meredith & Grew’s third-quarter figures, Boston now has 1.6 million square feet of subleasing opportunities, with that space accounting for 36 percent of the total office supply available and 72 percent of the negative absorption thus far in 2001.

The latest piece of sublease about to impact the market is coming from Fidelity Investments, with sources maintaining that a 110,000-square-foot block at 99 High St. will hit the streets within the next few weeks. Calls to Spaulding & Slye, leasing agents for the building, were not returned by press deadline, while efforts to contact Fidelity officials were unsuccessful. Despite that, one source insisted that the mutual fund giant is preparing to offer the space for rent, making it just the latest substantial sublease option that Fidelity has put on the Boston market within the past few months.

There’s tons of space out there right now, said the source. It isn’t very pretty.

‘Sporadic’ Deals
In the silver-lining category, however, brokers say there are a growing number of companies that are getting closer to the point where they will have to make a leasing decision, whether it be remaining at their current location or finding a better deal elsewhere. Although it is unclear whether a substantial amount of leases will be finalized before the end of this year, there does appear to be hope that pent-up demand will make for a rebound in the first and second quarters of 2002.

Insignia/ESG broker James J. Adams estimates that a tenant seeking 20,000 square feet of space or more needs to be negotiating no later than 15 months before their expiration date to be able to successfully relocate in time. For those that are bumping up against that schedule, there could be increasing pressure to make a commitment, said Adams, who estimates that between 5 million and 7 million square feet worth of leases expire each year in Boston’s 50 million-square-foot office market.

Trammell Crow broker Barry Hynes concurred with that outlook, and said he believes there will at least be some activity in 2002 from firms that cannot wait any longer.

I would say that by mid-year [2002], we will see an uptick based on historical lease rollovers, he said. Companies are going to wait as long as they can, but if you are a sizeable tenant, you’ve got to start planning soon.

Meredith & Grew reports there were some Class A lease transactions completed in the third quarter, with Wellington taking a floor at 28 State St., Clark & Elby leasing 20,000 square feet at 101 Federal St. and the Baupost Group committing to the top floor at 10 St. James Ave.

Beyond those deals, Meredith & Grew has identified at least five tenants in the market needing 100,000 square feet or more of space. Brown Rudnick Freed & Gesmer is seeking 150,000 square feet, as is Goulston & Storrs. Others include Bain & Co., which needs 125,000 square feet, and two 100,000-square-foot users in Standish Mellon Asset Management and Lexington Insurance. With other six-figure requirements such as that by Choate Hall & Stewart in play, Barry Hynes said he believes Boston will rebound strongly next year and will continue to improve into 2005.

I think Boston is well-positioned on the demand side to have a very healthy market, especially from 2003 to 2005, he said.

While that may be the case, he did agree that the city’s short-term outlook is bleak, especially compared to the record leasing campaign enjoyed throughout Massachusetts in 2000.

The deals so far have been very sporadic, he said. We’re going to see much different year-end statistics than we did a year ago.