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 Q1. For the MSA of Boston, third-quarter vacancies are 12.1%, which is a little better than the national average but a jump from the second quarter--which saw vacancies of 8.7%. "Boston was performing better than the overall picture," Xochitl Leon, an analyst at Torto Wheaton Research, tells GlobeSt.com. "Now it is closer to the overall picture."
Leon attributes the jump 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 per year. As of 1999, the area was building an average of 3.5 million feet per year. Over the next five years, the area can expect an average of five million sf to be built annually. 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 since they will increase only slightly, by 3.7%. But when compared with an average 30% increase in rents for the previous two years, it demonstrates the beating this market has taken. After 2001, Leon says, rents will decrease over the next two years by about an average of 4%.
"The past 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 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 8% availability. "We expect that after 2002, availability rates will start to go down in industrial space in Boston," says Leon.
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