According to Meredith & Grew's fourth quarter market statistics, the overall vacancy rate is at 14.4% and the negative absorption is at 730,068 sf. But 3.3 million sf was leased this quarter and another one million sf are pending. This number represents an increase from last year at this time when velocity was nearly nonexistent as companies reassessed their plans in the aftermath of September 11th. The majority of these transactions have been lease renewals.

While the negative absorption is still relatively high, compared to last year's negative absorption of 2.71 million sf, things could be starting to look up. The report specifies that the markets with the most significant negative absorption were the Financial District and Back Bay with absorption of negative 1.2 million sf and negative 226,192 sf respectively. This was offset by significant positive absorption in the South Boston Waterfront of 326,097 sf; the Fenway/Kenmore market of 298,242 sf; and Crosstown of 189,863 sf.

The report indicates that rents continued to decline throughout the year. Weighted average asking rents at year-end were $38.33 per sf, a slight decrease from last quarter's rate of $40.04 per sf. However, this is still a significant decrease of 14% from the $44.58 per sf figure at the end of 2001. Despite the continuing economic difficulties, there was an increase in leasing activity during the year. The report attributes this increase to companies evaluating their real estate strategies and tailoring them to meet their business goals. Also, many tenants in the market have lease expiration dates ranging from 2004 to 2006 and are acting early to take advantage of the market conditions. The report predicts that demand will be steady over the next four years as approximately 10.8 million sf of leases expire during this period.

The report also indicates that, although by historical standards the amount of available sublease space is high, it leveled off at just over 2.5 million sf and changed little throughout the year. The sublease market continues to be an area where a tenant can achieve good value for quality space, notes the report, but it adds that tenants seeking longer terms and requiring sizeable improvements either rule out a sublease as a viable option or will negotiate directly with the building owner.

There is approximately 2.5 million sf of new supply currently under construction, and another 5.5 million sf proposed through 2008. Among the forecasts Meredith & Grew have for the upcoming year are: vacancy rates in the 15% to 16% range; a continued tenant's market; velocity that will remain steady at about three million sf; net absorption that will remain flat; and, rental rates that will continue to decline an additional 5% to 8%.