Sublease Space Continues to Define the City's Market

And with an economy that is still dictating further layoffs and consolidation it is unclear when all this excess space will finally be absorbed. According to Spaulding & Slye Colliers International's fourth quarter market statistics, net absorption was at negative 286,827 sf last quarter as compared with a negative net absorption of 98,192 sf for the third quarter of the year.

Vacancy rates increased from the third to the fourth quarter of the year, according to the report from 7.4% to 9.3%. But when sublease space is factored in the available space shoots up to 15.9% for this quarter as compared with 14.4% for last quarter.

"Sublease space is the driving force behind dropping rents," Bill Collins of Spaulding & Slye, tells GlobeSt.com. While the average asking rent for last quarter was $41.78 the average asking rent for this quarter is $39.72. Collins points out that there has not been a lot of activity in the sublease market because there is not a lot of demand for short term space. "Tenants with expiring leases are going to get better deals and they might as well lock in for the long term," he says.

The report indicates that almost all sectors of the city's market saw their availability rate go up this quarter. North Station went up to 12.2% from 10.3%. The financial district's availability rate increased from 15.1% to 16.8%. Back Bay's rate increased from 14.7% to 16.7% while South Station's went up from 8.6% to 9.1%. The South Boston Waterfront district's availability rate dropped a miniscule half a percentage point from 17.7% last quarter to 17.2% this quarter. Only Charlestown managed to keep its availability rate down at 6.8% for this quarter as compared with 7.1% for the third quarter of the year.

A number of major deals are currently in the works with Bain taking 120,000 sf at 131 Dartmouth St., Arnold taking 170,000 sf at 501 Boylston St. and PricewaterhouseCoopers taking 310,000 sf at 125 High St. But in each of the deals, the tenants gave up similar, if not more space, in other locations having, at best, no impact on the excess space in the market.

Collins foresees an increase in velocity in the next quarter with a lot of renewal activity as well as transactions on leases that have another year or two left on their term. But he emphasizes that the economy needs to improve before the market sees any real change.