Lucent Technologies has put several properties up for sale, including 55 Fairbanks Blvd. in Marlborough, a 500,000-square-foot office complex in the Interstate 495 beltway.
The worst aspect of a computer virus is its propensity to spread exponentially, and in a way, the same problem appears to be hitting the region’s office market. The economic malaise that has claimed a slew of dot-com and Internet consulting firms in the sector’s core is moving quickly outward, with industry observers reporting a sudden torrent of sublease space becoming available along the Interstate 495 beltway.
“We are starting to see that,” Cushman & Wakefield broker James Belli acknowledged last week. “There are some big chunks of space out there that need to be retenanted.”
Until recently, Belli said, big players such as Cisco Systems, Nortel Networks and 3Com had weathered the economic storm much better than firms in Boston and Cambridge and along Route 128. According to Meredith & Grew, for example, the vacancy rate for I-495 stood at a healthy 4.9 percent at the end of the first quarter, barely half the 9.3 percent posted in Cambridge and well below the 9 percent level along the Route 128/Massachusetts Turnpike sector and 8.1 percent on the North Shore.
The softness has continued in other markets, with Cambridge now at 11.8 percent, the Inner Suburbs at 14.8 percent and the North Shore at an alarming 16 percent. But while still performing better than other submarkets, I-495 now has a 7.7 percent vacancy rate, Meredith & Grew reports, reflecting an increase of almost 3 percent in a few months time. Meanwhile, the news is not getting better, with high-tech companies in the outer region seemingly announcing layoffs and sublease space on a daily basis.
Belli, for example, is working with Cushman & Wakefield’s New Jersey office on the planned sale of several commercial properties owned by Lucent Technologies. Included in the package is 55 Fairbanks Blvd. in Marlborough, a 500,000-square-foot complex at which the firm will reportedly reduce its occupancy in by at least 50 percent, and possibly more than that.
Belli could not say just how much space Lucent is looking to give up as part of the sale, but he did agree that companies such as Lucent are significantly curbing their space projections. He and colleague Kevin Hanna are also marketing the 3Com corporate campus in Marlborough, with that firm having determined it no longer needs the bulk of the existing 540,000 square feet, let alone the development potential for another 660,000 square feet.
“The market changed, their business changed and they just aren’t having the growth that they thought they would have at that location,” Belli said. “It’s really a function of today’s environment.”
Certainly 3Com and Lucent are not alone, with EMC Corp. already putting plans for more than a million square feet of expansion on hold. And while it does have a lease already signed, the firm supposedly is also unlikely to move into a 150,000-square-foot building under construction by the Chiofaro Co. in Westford, with one source maintaining that “there’s no way they are taking that space.”
CB Richard Ellis/Whittier Partners principal Gary J. Lemire agreed that the near future looks bleak for the area, maintaining that the retrenchment of its top companies means that “[Interstate] 495 is going to take a big hit.
“It’s going to depress the whole market out there,” Lemire said, adding, “It’s a bit scary right now.”
Other reports have Compaq Computer Corp. looking to get out of 300,000 square feet at 40 Old Bolton Road in Stow; Cisco giving up 50,000 square feet at Connector Park in Lowell and another 45,000 at Nagog Park in Acton; and Nortel Networks seeking takers for 300,000 square feet at 1000 and 1100 Technology Park Drive in Billerica. The firm is also said to be quietly shopping nearly 300,000 square feet at River Tech Park on Concord Road in Billerica, a property the company acquired last summer for $33 million.
“It has taken a while to hit, but there is some significant sublease space [along I-495],” said Spaulding & Slye Assistant Vice President Flory McCarthy. “There are definitely a lot more options available now.”
In Andover, CMGI has reportedly struck a deal with landlord Brickstone Properties to allow the space to be marketed directly by Brickstone. Blocks of 100,000 square feet and more could be assembled for lease, McCarthy said.
Not surprisingly, rental rates are quickly ratcheting downward. In the overheated climate seen for most of last year, I-495 North was seeing rents in the high $20s to low $30s per square foot, but McCarthy said most deals getting done have dropped back to the mid-$20 per-square-foot range. The Brickstone space is said to be on the block for about $17 per square foot, down from $23 per square foot last year.
The Upside
Although there is nowhere near the level of activity seen a year ago, McCarthy said some deals are getting done, including a 72,000-square-foot lease by Parexel at Cross Point in Lowell and an expansion there to 18,000 square feet by Zone Technologies. There are even firms with bigger space requirements circling the market, with Cadence Design supposedly seeking upwards of 250,000 square feet and Sonus Networks in need of 75,000 square feet.
Even with the nervousness in the market right now, McCarthy said there are some bright aspects to the downturn, especially from a tenant’s perspective. “It’s a much more level playing field,” he said. “It’s more of a true negotiation process vs. the bidding process we saw last year.”
Others expressed long-term optimism for the I-495 beltway, with Belli noting that the Marlborough area has come into its own in recent years. Along with Fidelity Investments and the Putnam Cos., the area has become a Mecca for high-tech companies, often gobbling up facilities and workers left over from the high-tech collapse a decade ago.
“It’s definitely a market of choice today,” Belli said. Even with suburban office buildings losing favor with investors these days, Belli predicted the 3Com campus and 55 Fairbanks Blvd. will attract interest. The 3Com property is being targeted toward an owner-occupant rather than investors, he said, noting that the building was designed as a single-tenanted facility. Among its other attributes are the quality of construction and the fact that “it doesn’t have a lot of miles on it,” Belli said.
“It’s a wonderful piece of real estate,” he said.
