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| The overall movement running through
Greater Boston's commercial real estate market currently
is a cautious, slow movement toward stability. Although
recent trends show a slight movement toward lower vacancy
rates more or less across the board, equilibrium in
the market is nowhere to be found currently. Rents are
still low and vacancies are still high. Only if current
trends continue-including many large deals-will absorption
trend toward average and the market will finally experience
an increase in rents. Let's take a detailed look at
the major markets. |
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Absorption
is increasing and deals are being made; vacancies should
drop to late-1990 levels by 2008.
The main event: The
third quarter of 2004 was statistically the worst single
quarter in history, with negative 1.2 million s. f.
of net absorption. The region experienced the "perfect
storm": Banking (Bank of America), Mutual Funds (State
Street), and Insurance (Manulife) collectively put more
than 1.5 million
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s.f.
on the market.These firms are among the largest in Boston
- only Fidelity is larger.
Vacancy/ availability:
The gap between vacancy (space vacant today) and availability
(space vacant plus space announced as coming vacant
within 18 months) has never been higher. For example,
vacancy in the Class A Premier Tower market stands at
a respectable 5.6 percent. However, availability stands
at an unsettling 13.2 percent, or almost three times
the true vacancy.
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Average
asking rents: Class
A Premier: $40 - $45 with $60 in tenant improvements
(TI); Class A: $35 - $40 with $60 TI's; Class
A Minus: $32 - $36 with $70 TI's; Class B: $22-$
28 with $40 TI's.
Forecast:
Looking forward 18 months, we project net absorption
in Boston at 900,000 s. f., a number which, as
an underlying indicator of growth, has been increasing
steadily from 600,000 s. f. in September 2003
to the present. Since there is no space under
construction in the
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City and there is unlikely
to be any space delivered prior to 2008, vacancies should
drop to late- 1990 levels by 2008.
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Expect
a further drop in lease rates before the turnaround
occurs
The main event: There
are three large build- to- suit projects under- way
in a 20 percent- plus vacant market: Broad Institute
(200,000 s. f. at 7 Cambridge Center), Schlumberger
(200,000 s. f. at One
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Hampshire
Street), and Smithsonian Institute (81,500 s.f. at Cambridge
Discovery Park). There has also been a continued influx
of life science companies that are attracted to Cambridge
and headquartered elsewhere, like GeneLogic and Organon
International.
Vacancy/ availability:
The overall office vacancy is at 17.6 percent, down
from 19.0 percent in Q2 2004 due to a drop in Class
B vacancy rates. Class A vacancies still remain at 20.4
percent.
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asking rents: Class
A office rents are in the range of $25 - $30 p.
s. f. gross, and Class B rents are $19 - $22 p.
s. f. gross. Lab space is quoted in the $30 -
$40 p. s. f. NNN for existing labs offered as
is or with refinishing allowances up to $25 p.
s. f.. New first class lab- capable shell space
is asking $40 - $50 p. s. f. NNN with $100 - $120
p. s. f. allowances. |
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Forecast: We expect
a further drop in lease rates before the turnaround
occurs that everyone's been hoping for since 2000. The
soft market conditions are likely to continue for the
foreseeable future until the supply is worked down to
at least the mid- teens percentage vacancy.
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SURBURBAN OFFICE ROUTE 128 REPORT |
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For
the next 12–18months, the submarket will show a slight
improvement, but shadow space could still be an issue.
The main event: There
has been a slight uptick in demand although rents continue
to remain flat and landlord concessions high. Companies
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continue
to move towards higher quality product and owners.
Vacancy/ availability:
Overall office vacancy has increased slightly
from 18.4 percent in the second quarter to 18.5
percent currently, partially due to Equiserve's
consolidation in the 128 Southwest submarket.
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Average
asking rents: Class A office asking
rents are averaging $22 - $29 p. s. f.,
and Class B asking rents are averaging $15
- $22 p. s. f.. Rental rates are essentially
at 1996 - 1997 levels.
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Forecast:
For the next 12 - 18 months, the 128 submarkets
will show a slight improvement as demand continues
to build. Even though some of the sublease space
has burned off, shadow space could still be an
issue before we see substantial absorption.
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For
the next 12–18months, the submarket will show a slight
improvement, but shadow space could still be an issue.
The main event: There
has been a slight uptick in demand although rents continue
to remain flat and landlord concessions high. Companies
continue to move towards higher quality product and
owners.
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Vacancy/
availability: Overall office vacancy has
increased slightly from 18.4 percent in the second
quarter to 18.5 percent currently, partially due
to Equiserve's consolidation in the 128 Southwest
submarket.
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Average
asking rents: Class A office asking
rents are averaging $22 - $29 p. s. f.,
and Class B asking rents are averaging $15
- $22 p. s. f.. Rental rates are essentially
at 1996 - 1997 levels.
Forecast:
For the next 12 -
18 months, the 128 submarkets will show
a slight improvement as demand continues
to build. Even though some of the sublease
space has burned off, shadow space could
still be an issue
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before we see substantial
absorption.
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Increasing
activity should carry into the first quarter of 2005.
The main event: Though
recent large deals do indicate that there has been activity,
they actually represent a slight negative net absorption
in the market because these tenants have moved to smaller,
yet more
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efficient
space.
Vacancy/availability: The current overall
industrial vacancy rate stands at 10.2 percent,
down from 10.7 percent in the second quarter.
The flex/R&D vacancy rate experienced a slightly
better drop from 17.5 percent in the first and
second quarters to 16.9 percent currently.
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Average
asking rents: Industrial rents range
from $5.00 p.s.f. to almost $8.00 p.s.f..
Flex/R&D rents range from $6.50 p.s.f. to
over $15 p.s.f.. Essentially, rates have
remained steady over the last few quarters.
Forecast:
There has been a
definite uptick in activity, one that we
expect will carry through the rest of 2004
and into the first quarter of 2005.
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Although the Greater Boston's commercial
real estate market is trending toward stability, do
not expect a quick return to normalcy. Although equilibrium
in the market may return if current trends continue,
there is no quick fix. Patience is the key.
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