Caution Creeps Into Boston Real Estate Scene

BOSTON-For all the upbeat regional trends reported–rising rents, healthy space absorption and limited construction–the tenor during Thursday’s commercial real estate review at the Seaport Hotel seemed surprisingly subdued. “We may be in a recession right now and not even know it,” advised Hans Nordby, moderator for the semi-annual event co-sponsored by the local chapters of Naiop and SIOR. The P&PR economist and a panel of industry experts offered data showing solid fundamentals and listed a cadre of hefty leasing requirements circulating the flex, industrial and office classes, but accompanying analysis was measured.

“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.