Cambridge's Tech Bust Offset by Biotech Boom

The overall Cambridge vacancy rate had what the report terms a "record high" of 20.8%, an increase over both the 2001 year-end rate of 18.4% and the third quarter 2002 rate of 19.5%. Fourth quarter absorption was a negative 225,000 sf, reflecting what the report says is a "continuing malaise in the technology (office) sectors and a softening biotech market."

Despite the higher vacancy rate, the city actually had a positive absorption of 329,431 sf for the year, which is indicative of a relatively strong biotech/research and development market--that had a positive 732,337 sf absorption--that offset the weak performance of the office market--that had a negative 402,906 sf absorption.

The report says that the biotech market was buoyed by Novartis, which leased 800,000 sf in three different buildings and which accounted for 57% of the year's velocity. But a cautionary note is added to the report: the second half of 2002 was characterized by "a softening biotech market as demand for new space weakened and, for the first time, a number of existing biotech companies either gave up space or put excess space on the market for sublease."

As of year-end 2002, the vacancy rate for the city's office market reached 23.2%, up significantly over the 2001 year-end rate of 19.4%, with 1.5 million sf of direct space and 911,358 sf of sublease space available. Absorption for the quarter was a negative 106,000 sf. New transaction velocity for the fourth quarter totaled 218,000 sf.

The biotech sector's 11.4% vacancy rate compares to an 8.3% rate at 2001 year-end and a 9% rate at 2002 third quarter end. Transaction velocity totaled 44,563 sf for the fourth quarter and 1.4 million sf for the whole year.

Office rents continue to fall with the average range in the East Cambridge area falling 27% from $35 to $42 per sf at the end of 2001 to $24 to $32 T the end of 2002. The report predicts further downward pressure on rents until there is a strong technology sector recovery. Biotech rents for new and second generation lab space are in the $45 to $60 per sf range. But the report says that the current slow demand coupled with the increasing availability of both existing lab space and biotech ready shell space will lead to lower rents in that sector as well.