BOSTON-While most of the country figures out its way back from the brink and waits for the next shoe to drop, Boston has been churning along with other powerhouse cities like New York and San Francisco. The affects of the downturn have all but worn off as the Hub out-paces the rest of the country, boasting 2.5% unemployment growth since February 2009, while the national average lost 0.3% over the same timeframe. This keeps rents moving up.
“This is a market that experience growth at a time when most other markets haven’t and that’s why we’ve seen a positive absorption in office product in Greater Boston,” says Richards Barry Joyce & Partners’ SVP of research Brendan Carroll. “A five-quarter streak of positive absorption and, not only that, but it seems to be an accelerating trend because this quarter was 781,000 square feet.” Boston has not seen this much positive absorption in four years, he explains. The last year that reflected that kind of growth was in 2007.
While the future predictions are cloudy, the stock market has some ancillary effects. While not directly contributing to any negativity fundamentally here, Carroll points to dwindling initial public offerings as a possible result. “We’d been seeing 13 IPOs per month in the first half of 2011, which is absolutely a driver of activity here in Boston,” he explains. “Since the beginning of August we’ve seen three.”
RBJ’s report notes that nearly a half-century of gentrification is finally paying dividends as Central Boston is commanding higher rates due to a mix of desirability and a migratory penchant for urban centers recently. “Commercial rents for office in the Back Bay are averaging over $50 per square foot,” Carroll says. “Compare that to the suburbs which are on complete average, $25 per square foot. If you go to Dallas, you’re not going to find more than a 20% premium to be in the urban core.” Manhattan is the real exception, but it is rare for that not to be the case regarding New York City.
And in a down market, neutral indicators sometimes look negative, but it can’t always been seen that way. For example, employment forecasts turned from positive to flat growth. “That expectation of growth to expectation of being flat could also be interpreted as stable in a market that is otherwise presenting challenges,” Carroll says.
As importantly, Boston’s drivers are themselves more robust, explains Robert Richards, president of RBJ. “We’re in a think tank environment. People are coming to Boston—pharmaceutical, technology companies—are flocking to Boston to get access to our intellectual capital. Those people want to be in the most vibrant, well-located nice properties.” This has caused a rise in class A rates and created a cratering effect for class B and C properties in East Cambridge and the adjoining suburbs of the biotech corridor. And these companies are not blinking when it comes to top quality space.
“The current cast of characters in Boston, Google, Microsoft, nobody wants to waste money—but they aren’t looking to cut every dime they can if it’s going to give up being in the right place,” notes Carroll. “These are all companies that many are dealing with record balance sheets, which is a funny paradox in today’s market. These are groups that can afford to be where they want to be and will not make sacrifices when they should not.”
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