Commercial real estate executives say Boston is poised for a strong year, but the Back Bay is a trouble spot.
In a two-hour session hosted by NAIOP Massachusetts Thursday morning at the Westin Waterfront dubbed “Mid-Year Market Roundup,” brokers and researchers emphasized the positive as an influx of companies from Cambridge are filling Boston’s offices. But they revealed a mixed bag in the downtown as space in the lower portions of the towers continue to be vacant.
Debra Gould, a broker at Cushman & Wakefield, said there are good signs for landlords in the downtown where vacancies have shrunk to 10 percent, down from 12.6 percent a year ago. Midtown, while it is a small submarket, has had the greatest decrease in vacancies, she said. ThePartners HealthCare deal for 136,000 square feet of office space at Lafayette City Center in Downtown Crossing, and an influx of startups, has helped. “We are absolutely seeing growth in the tech sector and we are also seeing lots of companies coming from Cambridge,” she said.
The only market where there has been an increase in vacancies is in the Back Bay, Gould said. There continues to be uncertainly in the city’s most expensive office market with State Street Corp. downsizing considerably, she said. “They also have 400,000 square feet in Copley and it’s still not clear what will happen to that space ... and obviously they are vacating the low-rise portion of the John Hancock Tower and there are price concerns ... activity in the Back Bay will be slow,” she added.
Average rents have fallen in the low-rise spaces of the towers to under $41 per square foot in the second quarter, down from nearly $44 one year ago, Gould said. “The prices in the low rises are the result of the amount and type of space on the market,” she said. But in the upper floors of the towers, rents have increased to $55 per square foot, up from $51 a year ago, she said.
Leasing activity in the Hub is down this year by about 17 percent, Gould said, as tenants downsize and seek value everywhere. One tenant, she said, is going from 350,000 square feet in Boston to 130,000 square feet. “They are going from 400 square feet to 150 square feet per person,” Gould said. “That ratio of 150 to 250 square feet per person is consistent and across the board from big and small companies.”
Steve Purpura, a broker at Joyce & Partners who specializes in Cambridge, said 400,000 square feet has been absorbed in East Cambridge recently, leaving just two blocks of space for users who need 50,000 square feet or more. He noted 2.4 million square feet is under construction in Cambridge, but 94 percent of that is committed.
On the suburbs, Garry Holmes, president of R.W. Holmes Realty Co., had these words of advice: “Do not discount the suburbs,” he said. “There is so much media attention on Cambridge and the Seaport and rightfully so, but there’s tremendous growth and momentum in the suburbs.”
Still, the suburban vacancy rates remain at 20 percent and rents are under $36 in the Route 128 belt and much lower is some submarkets, down from the peak in 2008 when rents approached $40.
Paul Briggs, research director at Bentall Kennedy, said the Hub has regained all of the jobs lost in the Great Recession. He said office rents have been growing at a 3 percent clip while the office vacancy rate is 11.3 percent. Things could be a lot worse, he said, but they are a lot better than other markets in the U.S.
“With demand growth at nearly 3 percent over the past year in a very tight market, that’s a recipe for rent growth on the office side,” he said. “The apartment market is also very tight compared to other markets and we’re seeing good rent growth.”
On housing, Briggs said the fact that the residential market has rebounded is a very positive sign for the regional economy. Home sales are driving an increase in construction and fueling the recovery in construction jobs.
“It is important to note that Boston’s housing market was a little more stable than what we’ve seen nationally,” he said. “The 20-city index ran up about 80 percent in the five years prior to it peak, while Boston ran up by 50 percent, and that’s still really good growth.” Boston’s economy is stable with the education, health care, technology sectors propelling the economy, he added.
Source: Boston Business Journal