Challenges Continue to Frustrate City Market

BOSTON-The message to be read from the latest statistics on the city’s real estate market is difficult to decipher. While the market experienced positive absorption this quarter after nine consecutive quarters of negative absorption, according to a recently released mid year survey by Meredith & Grew, the vacancy rate is relatively unchanged and rental rates have declined slightly.

According to the survey, absorption decreased from negative 514,193 sf to 420,878 sf. This represents an increase in occupied space of over one million sf but the survey emphasizes that this is due to recent events–specifically the opening of One Lincoln and corporations pulling large blocks of sublease space off the market. “These are one-time events, and although they are positive signs, the result of these events was positive absorption that does not accurately reflect conditions in the market,” notes the report. If these events were removed from the statistics, absorption would remain at approximately negative 500,000 sf.

The vacancy rate of 16% is nearly equal to last quarter’s vacancy and up from 14.4% at the end of 2002. The report points out that the vacancy rate for tower space on floors 20 and above is only 6.2%, which indicates what it terms a “two-tiered market” with class A high-rise space experiencing different dynamics than the market as a whole. The vacancy rate for direct space increased slightly from 11.9% to 12.5%, caused primarily from changes in the sublease market.