At least the world didn’t end.
Other than that consolation, the first three months of 2000 have been as difficult on office tenants as it was before the dawning of the new age, with the booming economy and lack of supply continuing to drive rental rates up and vacancies down throughout Greater Boston.
“It’s a little bit unnerving for tenants in the market right now,” acknowledged Tamie Thompson, a principal and suburban specialist with Spaulding & Slye Colliers. “We’re really struggling to find space in all size ranges.”
According to Spaulding & Slye, there are currently 214 companies actively seeking office space in the suburbs, with an aggregate demand of 7.78 million square feet. Of that, 12 users require more than 100,000 square feet, and another 19 need between 50,000 and 100,000 square feet. But while contiguous blocks of space have been difficult to locate for some time, Thompson said it is even hard to accommodate tenants needing 15,000 square feet or less, where 92 prospects are scouring the market.
“It’s getting to the point where you have tenant rep assignments, and no place to put them,” Thompson said.
According to first-quarter figures released last week by Spaulding & Slye, the normally slow period saw an incredible 1.9 million square feet of net absorption in the suburbs, headlined by 616,000 square feet of absorption in the Northwest market. Overall, the suburbs have a 6.7 percent vacancy rate, with only the Interstate 495/Mass- achusetts Turnpike region in double digits with its 12.3 percent vacancy rate. Four of the eight submarkets were below 5 percent vacancy rate, including a low of 2.1 percent in the I-495/South sector.
Leading first-quarter deals included an 80,000-square-foot lease by Oak Technologies, which committed to 10 Presidents Way in Woburn, while supermarket shopping firm Home Runs took 45,000 square feet of office space at 200 Wheeler Road in Burlington. More than 150,000 square feet in leases were completed at 100 Crosby Drive in Bedford, including 45,000 square feet by Inteq Corp. and a 28,000-square-foot deal by Incentive Systems. Other recent deals include Verbind, an Internet firm that is going to 100 Hayden Ave. in Lexington, and MCI Worldcom, which committed to 50,000 square feet at Reservoir Place in Waltham.
Of the active requirements, Thompson said most of the demand has been concentrated in the core Route 128 market between Burlington and Needham. Nearly 35 percent of the space sought is focused on those communities, Thompson said, adding that she believes the attention is coming from Boston and Cambridge tenants being squeezed out of those markets.
Certainly Cambridge is among the hardest markets in the country to find space, as witnessed by the miniscule 0.6 percent vacancy rate registered at the end of the quarter by Spaulding & Slye. Stunted by the lack of supply, Cambridge saw just 45,000 square feet of net absorption during the first three months of the year.
“If anything, market conditions have worsened for tenants in Cambridge,” said Cushman & Wakefield Managing Director Mark Winters. “There are fewer blocks of space and numerous tenants competing for them.”
Cushman & Wakefield’s preliminary numbers place Cambridge at 1.1 percent vacancy, down from 2.2 percent at the start of the year. The company estimates asking rents for Class A space now average $46.31 per square foot, up from $41.36 per square foot three months ago – a 12 percent hike in that brief time frame.
“Rents right now are at levels I never dreamed I’d ever see,” Winters said. “It is really unbelievable.”
Hub Is Full
Conditions are not much better, if at all, across the river in Boston, although Spaulding & Slye is reporting that the city actually saw negative absorption in the first quarter. The Financial District had negative absorption of 197,000 square feet, while the South Boston waterfront was down by 20,029 square feet. But Spaulding & Slye principal James Hooper stressed that the negative figures do not tell the real story, maintaining that it reflects more the way the company compiles its data than any disconcerting leasing trends.
The firm, for example, included 470 Atlantic Ave. in its numbers. While the 335,000-square-foot building is vacant in preparation for a gut rehab, it had not appeared on the company’s radar screen until the project was approved and ready to go. In addition, Spaulding & Slye does not include tenants moving into new buildings until that project is completed, so any of the firms that have announced moves to towers under construction, such as the World Trade Center East or 111 Huntington Ave., will not appear until it is on line.
“There is a lot of activity in the market,” Hooper said. “Believe me, I wish we had some real negative absorption so we had some space to lease.”
Indeed, Ted Wheatley of the Codman Co. said his firm is showing positive absorption for the first quarter of 280,000 square feet in Boston overall and 348,000 square feet in the Financial District. That comes despite the addition of 300,000 square feet of space being put on the market by Fleet Financial at One Federal St.
“The first quarter was extremely active and bordering on hectic,” Wheatley said. “It’s going at such a fast clip that people’s heads are spinning.”
Wheatley said there was some question at the end of 1999 as to whether the strong leasing of the previous year would continue into 2000, but based on the activity since, he said it appears that such concerns were unfounded.
“After the first quarter, I would say that the pace has accelerated even past what the most optimistic landlord would have predicted,” Wheatley said. Class A space is now averaging in the mid $50 per- square-foot range, he said, while the Hub’s Class B properties are approaching an average of $40 per square foot.
In the past, tenants could always turn to older buildings and fringe office districts, but that option has all but disappeared as well. Ironically, according to Spaulding & Slye, the Financial District has the largest vacancy rate at 2.7 percent. The Back Bay is at 1.4 percent, the Leather District/South Station market is at 0.5 percent, while the Seaport District has a 1.3 percent vacancy rate.
“There is nothing available at North Station,” added broker Karyn McFarland of McFarland & Finch. “People want to be down here, but there just isn’t anyplace for them to go.”
One case in point can be found at 98 North Washington St., an office building owned by Fairlane Properties. McFarland said a 15,000-square-foot block of space opened up several weeks ago, but was committed within a few days.
“It wasn’t even vacated,” McFarland said. For that reason, leasing activity has been stunted, with just 2,873 square feet of positive absorption in the first quarter for North Station. South Station saw only 8,273 square feet, while Charlestown had 7,064 square feet.
About the only thing on the horizon in North Station is 155 Portland St., a 48,000-square-foot office building that aims to break ground later this year.
