Gilbane Properties and College Street Investments are forging ahead with an overhaul of the former Osram Sylvania plant in Danvers into first-class office space. Known as the Sylvan Business Center, the 255,000-square-foot project is aiming for a fall completion.

It isn’t pretty.
By any measure, the commercial real estate market at mid-year 2001 appears to be crumbling at warp speed, or so the statistics would suggest. According to the Spaulding & Slye Colliers report released last week, many of the phenomenal gains seen at the halfway point of 2000 have virtually disappeared, with vacancy rates in some suburban submarkets well ensconced in double-digit vacancies and Cambridge suddenly choking on a surge of sublease space.

Spaulding & Slye places the current office vacancy for the entire suburbs at 7.3 percent, still considered healthy but a dramatic jump from the 5.4 percent mark posted just 12 months earlier. The availability rate – which includes sublease – paints an even more dramatic picture, with the suburbs having almost doubled in that regard since the start of the year, from 7.1 percent to 13.3 percent. Cambridge’s availability rate, meanwhile, has skyrocketed from 1.9 percent last June – among the lowest in the nation – to 17.3 percent today.
Indeed, in just the past six months, more than half of the 10.4 million square feet of office space absorbed in the entire 132.2 million-square-foot market has been diluted, with negative absorption for the first half of 2001 at an astounding 5.58 million square feet. The retreat has been especially acute in the technology center, with firms as mighty as EMC Corp., Sun Microsytems and 3Com surrendering space they no longer have a use for and, in many instances, they never even occupied.

Despite the precipitous slide, however, and the advance of the typically sluggish summer period, some brokers insist there is life still in the market. North of Boston in Wakefield, where Hobbs Brook Management is developing a 160,000-square-foot office building, broker Charles E. Batchelder said there is “decent activity.” Located in the Edgewater Office Park, the five-story structure is slated for completion in October.

“We’ve got people from both inside the park and outside looking at it,” said Batchelder, with one firm having signed a letter-of-intent for one floor and another tenant mulling a deal that would take down half of the space. Some prospects are coming from the Cambridge and Burlington markets, Batchelder said, hoping to seek more cost-effective quarters. “We’re aggressive in our pricing,” Batchelder said, with the developers quoting rental rates in the $30 per-square-foot range. “That’s helping.”

Hard Hits
Up the road in Danvers, Gilbane Properties and College Street Investments is bulling ahead with its ambitious overhaul of the former Osram Sylvania plant into first-class office space. Known as the Sylvan Business Center, the 255,000-square-foot project is aiming for a fall completion, a potentially difficult time to hit the market given the recent trends.

While some observers said they believe Sylvan is attracting attention among tenants, the North suburban submarket has been especially hard hit by the economic slump. After posting a 7.9 percent availability rate a year ago, the 8.1 million-square-foot North sector has ballooned to an alarming 19 percent vacancy at present. Year-to-date net absorption is just under 500,000 square feet, a complete turnaround from the 1 million square feet absorbed at the halfway point of 2000.

“It is quieter than it was last year,” acknowledged Combined Properties President John M. Pereira, although he adds that the Malden firm’s holdings at Peabody’s Centennial Park has just 5,000 square feet available right now, with another 9,000 square feet coming in a few months. Combined has 330,000 square feet total in four buildings at Centennial. Asking rents which had tracked upwards throughout 2000 are now dropping back, with the North market down to $28.49 per square foot and the suburbs overall at $31.94 per square foot. The suburban average had peaked at $33.81 at year-end 2000, according to Spaulding & Slye.

While the brunt of the office market slowdown has been especially acute in the suburbs, Boston itself has been on its heels as well for most of 2001. Year-to-date net absorption is currently in the red by 1.61 million square feet, contrasting the 420,000-square-foot positive rate seen for the first half of 2000. The vacancy rate, while remaining among the lowest in the nation, has doubled over the past 12 months, from 1.5 percent to 3.2 percent. The availability rate has tracked a similar pace, from 5.4 percent in the Hub last year to 9 percent today.

Pricing for downtown Boston has also backtracked of late, dropping from $61.16 per square foot at the start of the year to a current average of $57.21 per square foot. In the fringe markets, the Seaport District has grown into double digits in vacancy with a rate of 10.8 percent, up from 4.1 percent six months earlier. The Back Bay, whose vacancy currently is 3.1 percent, leads the city submarkets with an average asking rate of $58.52 per square foot. North Station has the tightest numbers with a scant 1.4 percent vacancy rate.

In other real estate sectors, both flex space and the industrial market remain relatively in balance compared to 2000, although both have seen negative absorption to date in 2001. Spaulding & Slye estimates that the flex, or R&D, market had negative absorption of 473,000 square feet in the past six months, but the vacancy rate of 4.5 percent is essentially the same as the 4.4 percent posted last June. With minus 92,000-square-feet absorption in 2001, the industrial market now has a 6 percent vacancy rate, with asking rents of $7.83 per square foot.