BOSTON-During the second quarter, according to Richards Barry Joyce & Partners' figures, Boston showed 39,000 square feet of positive absorption, which as SVP of Research Brendan Carroll tells GlobeSt.com, is pretty negligible in a 177-million-square-foot market. This past quarter amounted to 401,000 square feet, which not only shows a significant drop in vacancy, also links two consecutive quarters of positive absorption. "This is a potentially indicative trend to be entering of positive absorption of space being taken, as opposed to companies shedding space," he explains.
The beating that Boston and its outlying submarkets took immediately following the tech bust took some time for recovery, but when it arrived, the precursor was flat absorption that led into a rally of 20 consecutive quarters of positive growth. Caroll points to the current trend as aping the this previous trend, although it is too soon to say for sure. However, "this is exactly how the last recovery began," he says.
The zeitgeist is all about jobs and Boston is not finding a surge in jobs, but Carroll says it's not time to worry just yet. "Jobs actually followed the recovery," he explains. "The last time it took about 12 months to increase the number of persons employed to translate to increased occupancy." It's also important to note that the way unemployment is counted may be somewhat counter-intuitive to confidence. Unemployment counts the amount of people out of work who are still seeking employment, so the numbers dropped slightly as more long-term unemployed began not bothering to search for gainful employ. However, as more and more people see a positive movement in the economy, more will re-enter the pool creating a surge in unemployment numbers as uncounted become recognized by statisticians.
The savior of this downturn for Boston has been its minimal pipeline, logging only 978,000-square-feet of construction, the majority of which—750,000 square feet—is Atlantic Wharf, which is 57% preleased. The minimal pipeline has helped landlords in the short term and some lease rates are beginning to get pushed in class A. But with no meaningful and concrete rise in employment, some of these spaces may be faking it until they make it. "On a case by case basis, you get small pockets where this happens," Carroll notes. "But when you take a look at this happening across a 177-million-square-foot market, it's an indicator that it all comes out in the wash in a market this big." He also explains that in these high demand pockets, there is a very low vacancy rate, the top end or most preferred class A assets, to put it another way. East Cambridge and Boston's CBD's most prized areas, above the 20th floor in the Financial District and the like are showing single digit vacancies. "Now that the credit markets are open, they can afford to be in the space that they want to be in," Carroll explains. "Landlords can ask a little bit more for those suites and test the market with increases, selectively."
Waltham is showing a slightly different trend right now, but that is primarily to what can be considered over-building, at least in terms of the rest of the minimal pipeline around the rest of the Boston-metro area. Waltham, since the beginning of 2008, added 1.5 million square feet, roughly amping the size of the market by 20%, all of which was class A property. Naturally, as over-crowding of vacant space settled in, lease rates began to decline. With more stability entering the market, Carroll explains, Waltham's lease rates are creeping back up. "It may seem similar, but it's a little different," he points out. "I think the story there is Waltham is just coming off a low trough because of temporary overbuilding and we're seeing a little bit of strength on the part of landlords due to an increase in occupancy levels."
However, there are some harbingers of a storm before the calm. Carroll notes that 2.6 million square feet of space being vacated, in terms of the last downturn, is not exactly a dramatic number, but "during this same period going back, the availability has increased by 11.4 million square feet," he explains. "The increase is so high, so beyond what has been vacated, it kind of implies that there are a lot of players in the market that still plan to consolidate." This may not seem like a surprise, but RBJ tracks the ratio of available vacant space, which puts these numbers into relief. On average, the ratio is 1.25, says Carroll, noting that there's always been a bit of parity with those numbers. "Today, the ratio is 1.6. This could imply that there are 3.4 million square feet of negative absorption pressure over the next 12 to 24 months." He is quick to point out this is not a prediction, but simply what comparing the numbers indicates. "It would appear that you need a shot of organic growth to counter that."
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