"Discipline has returned to the market," said DTZ FHO Partners principal Brian Hines in assessing the 125-million-sf suburban flex/office sector. Hines described activity as "slow and steady," even though the suburbs are on pace for three million sf of net positive absorption this year--triple the annual average--and deals are being completed in the mid-$40-per-sf range in core areas. Although rents are escalating, and the 1.2 million sf of new office construction is just 1% of the inventory, prospective tenants are unfazed by upward pricing and dwindling inventory, said Hines. One reason could be the 20 million sf of fallow product, including 44 options featuring 100,000 sf of contiguous space and seven in excess of 200,000 sf, while other companies are stepping lightly due to the uncertain economy and fallout from the credit crunch.

As in the case of Downtown, newer product and preferred locations are faring best, noted Hines, with the Interstate 495 North belt among those still struggling. Sporting a 23% availability rate, "that area still has a ways to go," said Hines, although communities such as Bedford, Billerica and Chelmsford appear to be catching the eye of price conscious tenants, offering hope there. Patience is the key for landlords, said Hines, with sublease supply on the wane and tenant demand expected to rebound in early 2008. "That's a good recipe for the suburban market," he said.

Organic growth should help the suburbs feed off the recent improvements, said Hines, but he was less sure that threats among Cambridge and Downtown companies to migrate outwards will lead to substantial suburban absorption. Although companies such as the Bank of America, First Marblehead and J.P. Morgan have reportedly suggested such a strategy, Hines said firms that rely on younger employees often need an urban office to satisfy lifestyle and transit demands. "Our prognosis right now is that [widespread migration] is not likely to happen," he said, which if true would be good news for Downtown and Cambridge landlords who are aggressively pushing rents.