"The key economic drivers in Downtown Boston are the financial services and insurance industries, and until they start adding jobs, the commercial real estate market will remain flat," says Joseph Sciolla, managing director of Cresa Partners in Boston, a corporate real estate advisory firm that specializes in tenant representation. He adds that Bank of America's and Manulife's recent acquisitions of Fleet and John Hancock have resulted in workforce consolidations and the addition of more than 300,000 sf on the market. Contributing to the area's instability, notes Sciolla, are the widening mutual fund scandals, with MFS and John Hancock joining Putman on the list of companies under investigation.

Cresa Partners' first quarter market report indicates that the city's vacancy is hovering at 16% to 17%, with rents for class A and class B buildings actually dropping a dollar this quarter, to $40 and $24 per sf, respectively. In South Boston, Cresa reports that the development frontier remains in flux, with three parcel owners seeking buyers. Tishman Speyer has broken off negotiations with Boston Wharf to purchase 44 buildings; the Pritzker family wants to sell its Fan Pier site; and Frank McCourt, the new owner of the Los Angeles Dodgers, continues to seek a buyer for his land parcel.

On a positive note, Cresa reports that the vacancy rate on floors 20 and above is 6% in high-rise class A buildings, which is down a couple of percentage points since last quarter, reflecting increased competition among companies for sought-after view space. According to Sciolla, approximately 65% of transactions today are being driven by lease expirations, with tenants renewing their leases at more favorable terms or "trading up" for higher-quality space. Sciolla points out that there is still a window for tenants to take advantage of the continued soft market conditions and use their leverage to lock into "excellent" long-term contracts with landlords. Tenants with lease expirations in the next couple of years are in a particularly enviable position, he believes.