According to the report, the tower market has recorded 560,035 sf of negative-net absorption year-to-date, primarily due to Fleet's marketing of 450,000 sf at 100 Federal St., pushing availability and vacancy to record highs of 18% and 11%, respectively.
But the report indicates that, on the positive side, there are some signs of future tenant expansion. In the tower market, 41% of requirements of at least 25,000 sf have at least an element of growth, compared to 14% that represent consolidation. The report further emphasizes that the city's towers will continue to benefit from a flight-to-quality mentality, as tenants previously forced to lower quality buildings or peripheral markets now have the opportunity to return to class A space at discounted rates. More than 60% of the non-renewal leases signed in the tower market during the past six months were from tenants previously in non-tower buildings. There is also a flight to quality within the tower market itself, and as a result, the high-rise continues to outperform in comparison to the low-rise.
According to the report, the average asking rent continued downward, reaching $38 per sf in the first quarter of the year. In direct tower transactions recently signed, rent on ten-year leases range from $28 per sf to $40 per sf. Some property owners are offering tenant improvement allowances of up to $60 per sf and up to 12 months of free rent.
The four largest tower tenants--John Hancock, State Street, Fidelity, and Fleet--occupied 4.6 million sf three years ago, but downsizing has brought their tower total to 3.7 million sf and is expected to decrease further in 2004 with Manulife acquiring John Hancock. The trend is leading to a shift with small to mid-sized tenants becoming the driving force of the market.
This dynamic is leading to changes in how owners and tenants will look at location and quality of space. The small to mid-sized tenants in the towers tend to gravitate to the smaller floor plates or the high-rise portions of towers. The larger financial services tenants that typically occupied large floor plates of the low-rise are reducing occupancy, as availability in floor plates of at least 35,000 sf is 23%. "These trends will further create a divide between the market fundamentals of the low and high-rise space, allowing owners to be selective in leasing their high-rise availability, while taking creative measures to lease the large floor plates," the report states.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
