Two Financial Center, a 12-story office building with 212,000 square feet of office space, is under construction in Boston’s Leather District.
Where’s Boston?
Downtown Manhattan in New York topped the survey with 4.6 million square feet. Other office markets to make the Top 10 were Chicago at 4.3 million; Charlotte, N.C., at 3.7 million; New York’s Midtown Manhattan at 3.5 million; San Francisco at 1.8 million; Philadelphia at 1.3 million; Denver at 1.2 million; and Washington, D.C., at 1.2 million. Sacramento, Calif., and Nashville, Tenn., rounded out the list at just under 1 million each.
The Boston Redevelopment Authority said the city has a handful of office projects under way that total more than 700,000 square feet. But if the Crosstown Center at the corner of Massachusetts Avenue and Melnea Cass Boulevard in Boston’s Roxbury neighborhood were added, it would bring the total to 910,000, placing the city at No. 9 on the list, according to the BRA. Crosstown started leasing space over the summer.
“Boston is on the cusp in terms of pure Class A office buildings,” said Kairos Shen, the BRA’s planning director. “But if Colliers added research-and-development space, that’s where our big numbers and investments have been. We have 1.26 million square feet of medical research space under construction. There are a series of office projects that are gearing up, and next year’s numbers will be much bigger.”
It is unclear what data was included in the survey’s totals. Kristin Sadlon, a Colliers spokeswoman, could not be reached by press time.
Lincoln Property Co. has commenced construction on its Two Financial Center project, a 12-story office building in the city’s Leather District that will consist of 212,000 square feet of office space. In September, The Fallon Co. broke ground on Fan Pier’s first office building, a 500,000-square-foot tower.
Other projects that may not have been included in the Colliers totals include One Franklin, the redevelopment of Filene’s that will offer 475,000 square feet of office space. Also under way is Boston Properties’ Russia Wharf project, which will contain 517,500 square feet of space on the city’s waterfront.
If the office pipeline were added to Boston’s totals, the city’s numbers would rival New York’s. Earlier this year, the BRA approved a proposal by Hines – an international firm whose headquarters are in Houston – that includes a 40-story office tower at South Station. Still in the planning stages is the city’s tallest tower to be built at Winthrop Square, which would replace a parking garage with a 75-story glass office building.
Modest Gains
In addition to its list of projects in development, the Colliers study reported that the nation’s office market showed modest gains in this year’s third quarter. The period from July through September saw the average vacancy rate drop to 12.24 percent, down from 12.38 percent from the previous quarter.
While vacancies dropped slightly, absorption, the amount of change in occupied space, totaled 18.9 million square feet. That figure is off slightly from the second quarter’s 20.7 million square feet, bringing the year-to-date change in occupied space to 51.8 million square feet. Compared to a year ago, absorption has fallen. At the close of the third quarter in 2006, absorption reached 70.1 million square feet.
Downtown district vacancy rates dropped slightly nationwide to 10.62 in the third quarter, down from 10.86 percent in the previous quarter. Nearly three dozen downtowns surveyed by Colliers recorded a decrease in vacancy over the past quarter, while 27 markets recorded an increase in downtown office vacancies.
For suburban markets, quarter-over-quarter vacancy rates were flat at 13.06 percent from 13.14 percent one last year. Twenty-eight suburban markets surveyed by Colliers reported an increase in vacancy, while 27 reported a decline.
During the same period, the vacancy rates for Class A office space fell to 10.97 percent from 11.1 percent. Meanwhile, vacancies for more economic office space fell 0.13 percentage points to 13.41 percent.
“Bearing in mind the plethora of bad news during the third quarter, the office market continued to act much like the Energizer Bunny, with demand humming along and rents ratcheting up yet again,” said Ross Moore, director of market and economic research at Colliers. “We’re clearly worried about the slowdown in housing and the fallout from this summer’s credit crisis, but to date, the office market hasn’t given up any of the gains made over the past several years.”
In terms of new supply, 17.6 million square feet was added to the U.S. office market during the third quarter and 102.6 million square feet is under construction.
Rents in downtown and suburban Class A buildings increased compared to the previous quarter, with a 3.2 percent rise in the nation’s downtowns rents and a 3.5 percent increase in the suburbs. Downtown rents have increased year-to-date by 15.4 percent, while suburban market rents have increased 9.3 percent.
Class A downtown rents in the United States averaged $47.41 per square foot during the third quarter, ranging from a low of $14.95 in Little Rock, Ark., to a high of $95.23 in Midtown Manhattan. The national average per-square-foot rent for suburban office space was $28.24.
Last month, Banker & Tradesman reported that the biggest increase in rents for the third quarter was in the city’s Back Bay neighborhood where one tenant was paying $72.50 per square foot at 111 Huntington Ave.
