An early evening view of the John Hancock Tower in Boston. Its reliance on financial sector tenants may cast a shadow on its own financial future.

Numbers can deceive, none more so than the current statistics for the Boston office market.

On paper, times have rarely been better, with vacancy rates below 10 percent and tower rental rates in the $60-$70 a square foot range, or higher, for choice high-rise suites in the Financial District.

But if the market has reached a peak, no amount of happy talk about market stability will dispel concerns that a sheer drop may be looming on the other side.

You won’t find such warnings in the quarterly reports, due out soon out, from the major commercial real estate firms. All do a fine job, but spooking clients is not part of the job description. Nor is looking back over the past three months all that helpful forecasting the economic storm about to break.

But real estate veterans who have seen a downturn or two know that a shakeout is on its way. Joe Sciolla, a managing principal at CressaPartners, doesn’t typically sugarcoat his predictions. And he’s not doing so now either.

All those job cuts on Wall Street – 100,000 to be exact – may look remote, but don’t think they won’t be spreading up to Boston, maybe sooner now rather than later. For starters, most of the Wall Street firms have branch offices in the city. And that’s before you factor in the toll on the rest of the financial services sector, or for that matter, on the struggling economy as a whole.

The next two years are not going to look pretty for the downtown office market, he predicts.

“I am telling you vacancy is going to go up and rents are flat at best and I think will go down,” Sciolla warns.

However, unlike past office market downturns, this one has the potential to be particularly nasty.

Lost Leverage

A new crop of highly leveraged New York buyers acquired a dominant share of the downtown Boston office market just as it began to peak over the past few years. Groups like Black-stone and Broadway Partners paid exorbitant prices, using loads of cheap debt, to get into this market, betting that rents would just keep on rising until they hit Big Apple levels.

They bet wrong.

Rents, far from soaring to New York heights, appear ready to settle back into a more traditional Boston territory.

You can forget about talk of $100 a square foot rents until the next boom hits, whenever that is. Think instead of rents topping out somewhere north of $60 a square foot.

Nor is it too hard to figure out where the first signs of trouble may emerge. You need look no farther than the center of the city’s skyline and its gleaming crown jewel, the Hancock Tower.

Broadway shelled out an unbelievable $3.3 billion in late 2006 for the marquee skyscraper and an array of other nearby buildings.

Looking back, it is a number that could only have been justified based on the assumption the tower would fetch ever higher rents.

It’s just the kind of disastrous bet that many Wall Street firms made on the once seemingly unstoppable residential real estate market.

Meanwhile, the Hancock’s roster of tenants, the envy of the city during the recent boom, now looks to be more of a liability.

The tower’s top floors have become a playpen for high-flying hedge funds over the past few years. And while hedge funds, insurers and financial services firms may have been dream tenants with big fat wallets a couple years ago, they are now more likely to figure in the nightmares of overstressed tower owners.

As some of these firms cut staff, or, in the worst cases, disappear altogether, that is likely to put even more pressure on the already highly leveraged owners of the Hancock. Vacancy at the Hancock is about 10 percent, somewhat above the market average of 8.8 percent.
Fortunately, or unfortunately as it may be now, the Hancock is hardly unique among Boston towers in relying upon financial services firms to pay its bills.

Financial services firms occupy 51 percent of the tower space in the city’s financial district, Richards Barry Joyce & Partners reports.

As the nation’s financial markets grapple with their worst challenge since the Great Depression, that number should be enough to give pause to even the biggest Pollyanna of the Boston office market.

NOTE FROM THE EDITOR:

— Vincent M. Valvo, Group Publisher and Editor-in-Chief