"Availability rates are much more indicative of the health of the market," Don Hause, vice president at Spaulding Slye Colliers, tells GlobeSt.com. "They take into account all vacant space that is available, like sublease space."
According to Hause, there is now over 650,000 sf of sublease space in the Cambridge market, most of which did not exist 45 days ago. This includes Cambridge Technology Partners, which has 47,000 sf of space available; Zentropy Partners, which has 40,000 sf available; Rowecom, which has 21,000 sf available; and, Perot Systems, which has 47,000 sf available.
"These companies have either downsized or this is space they committed to, given how tight the market was but they never grew into," points out Hause. He adds, owners have not yet started significantly lowering rents here yet. "People want to see if this is an aberration or a trend," he says.
Recently in East Cambridge, which Hause says is a good barometer of this area, rental rates were between $60 per sf and $70 per sf for first class property. Palm recently signed a lease here for $70 per sf for a one and a half year sublease. HQ signed a lease at 245 First Avenue here also at $70 per sf. Similarly, Art Technology Group's recent lease was for $70 per sf.
"It is difficult to pinpoint a trend because all these leases that were announced in December were negotiated in September when the market was at its peak," says Hause. Hause adds that asking rates here are now about $58 to $62 per sf.The trend will not get any easier to detect because tenants are hesitant to sign a lease now. "Everyone wants to see how the market will shape up," notes Hause. "Tenants here are looking at short term subleases now." Hause anticipates that if this trend continues into the second quarter of the year, rents will have to start coming down.
"The major owners that have vacant space will get more aggressive," he says. "But we were in an overheated market. Barriers to entry were nonexistent and it was so easy to get financing. Tenants were making decisions under duress."
Hause believes that Cambridge has strong fundamentals that will allow this market to bounce back, should this trend persevere. "There is the biotech industry here, not a lot of new construction and educational institutions," he says. "Once this space is absorbed, it'll come back to healthy levels. Besides, this market has a long way to fall before we get into difficult real estate conditions. Even if the office market falls to $45 per sf, money can still be made on that."
For related story, click on: Puget Sound's Eastside Sublease Numbers Soaring, Rates Dropping
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