Preliminary numbers indicate that third quarter vacancy rates for 54 metropolitan statistical areas across the country are at 12.3%, up from 10.8% in the second quarter and 9.5% in the first quarter. For the MSA of Boston, third quarter vacancy rates are 12.1%, which is a little better than the national average but this area's jump from the second quarter--which saw vacancy rates of 8.7%--was much higher. "Boston was performing better than the overall picture," Xochitl Leon, an analyst in the strategic consulting group at Torto Wheaton Research, tells GlobeSt.com. "Now it is closer to the overall picture."
Leon attributes this area's jump in vacancy rates to the construction going on in the suburban markets. "There is a mini-building boom of sorts in the MetroWest market," she points out. "It's not as overbuilt as the last recession but there is still a lot of construction compared with the last five years."
According to Leon, since 1990, this area built an average of two million sf a year. As of 1999, the area was building an average of 3.5 million sf a year. Over the next five years, the area can expect an average of five million sf a year to be built and in 2001 Leon notes that 7.3 million sf is expected to be built, with five million sf already completed. In 2004, 6.1 million sf is expected to be built but Leon says that some of those projects could still be cancelled. "Since 1988, we haven't seen this high level of construction," says Leon. "That year we saw 7.4 million sf built but ever since then, the number dropped. It has to do with the recent booming economy, but these buildings are coming in a little late."
The average rents for this year will not yet demonstrate this trend as they will increase slightly, by 3.7%. But when compared with an average 30% increase in rents in office space for the previous two years--1999 and 2000--it demonstrates the beating this market has taken. After 2001, Leon says that rents will decrease over the next two years by about an average of four percent. "The last two years were exceptional for Boston," notes Leon. From 1982 through 1998 the average increase in rent was 2.7%. "Now we'll perform a little bit below average, not taking into account the last two years."
One glimmer of hope is in the industrial market here, which is faring better than the national average. Torto Wheaton's availability numbers for industrial space--which is vacant space and soon to be vacant space combined--is 8.9% in the third quarter up from 8.2% in the second quarter. This area's availability rate for the third quarter is 7.6%, which is up from 6.7% in the second quarter. Leon says that the area should expect to end the year with eight percent availability in industrial space and that number should increase slightly in 2002. "We expect that after 2002, availability rates will start to go down in industrial space in Boston," says Leon. In 1991, those numbers went up to 14.2% in industrial space and this time the peak will probably be around nine percent. Rents in industrial space will reflect this trend, notes Leon, as they will probably flatten out in 2002. In 1992, rents for industrial space were at -32%.
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