According to the report, despite the softening economy, real estate continues to perform well. REITs in particular, notes the report, offer strong relative value. For the year 2000, the Morgan Stanley REIT Index was up 26.8%. The Index had a 7% total return just in December.
"Our thinking is that capital markets have been anticipating a worse situation than there really is," Michael Acton, vice president of AEW Capital Markets and principal author of the report tells GlobeSt.com. As far as the main REITs in this area, Acton points to Boston Properties and Equity Office Properties as two companies that are highly regarded and good indications of REITs that offer good value. "The biggest REIT exposure here is in the office sector," he notes.
Nationally there were negative absorption rates in the office market with San Francisco the worst with a negative absorption rate of –2.5%. Boston's negative absorption rate was –1.5%. Acton insists that that drop here is all part of an anticipated cycle. He notes that the last couple of years here have been phenomenal.
"Nobody assumed it would stay that way," he says. Acton acknowledges that the speed with which the Cambidge market softened took many by surprise but that is a function of how fast the technology sector went from boom to bust. "Most capital intensive industries don't change on a dime like that," he says. "It happened in less than a year. The sector reacted very violently with all those layoffs, but Boston hasn't suffered as badly as others."
Acton points out that while office markets here have not crashed, asking rents have started to come down. Ironically though, most leases that are being renewed now were signed at least five years ago--before the boom--so they're still being signed at a higher rate. Most rents are still at a level that justifies construction, adds Acton.
Probably the hardest hit area in the Greater Boston market is the Route 495 area. "The whole corridor is dominated by telecommunications companies," says Acton. "One sector is driving the real estate market there."
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