Crooks, head of the firm's Cambridge Group, notes that rates may fall another "few dollars per sf through mid-2004 and then remain flat through mid-2005, when a true recovery should finally be in place." The vacancy rate, which was about 1% in 2000, now remains at 26%, where Crooks anticipates it will stay for some time.
There are isolated examples of increased activity, points out Crooks, such as the Chickering Group's recent lease of 55,000 sf at One Charles Park. But most office transactions are in the 5,000- to 10,000-sf size range, and many are lease renewals and restructures.
A few larger deals materialized in the biotech market in the 40,000- to 50,000-sf range. Rent for lab space is averaging in the low $40 per sf range, while lab vacancy is tracking at 18%. "While some biotech stocks have improved, rents should continue to slide a bit among life science companies," says Crooks. "Venture capital sources have generally become more skeptical, and they are looking for proven intellectual property."
According to Crooks, while most start-up companies tend to flock to Cambridge to be near MIT and the medical and research centers, well-established firms are gravitating to Route 128. "For life science companies in the market with requirements this year, it appeared that for every transaction they signed in Cambridge, they signed another in Watertown or along Route 128," says Crooks.
According to Cresa's report, 2.8 million sf of direct office and lab space is available in the Cambridge office market, with an additional 1.3 million sf in sublease space. "It remains a buyer's market, so we encourage tenants to use their leverage with landlords in renegotiating their leases," says Crooks. "We also recommend that companies with 2004 and 2005 lease expirations start to assess their space options now. Site selection typically lasts at least six months, and if companies wait that long to begin their search, they may find that they're at a disadvantage."
Throughout 2004, Cresa Partners predicts that tenants will continue to be in a good position to negotiate for concessions such as free rent, greater tenant improvement allowances, and other flexible contractual provisions.
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