Suburban Market Hits Bottom

The survey demonstrates that at the end of the second quarter 2003, the suburban market has an overall vacancy rate of 25.7%, of which 16.4% is direct vacancy. Those numbers are nearly identical to first quarter numbers.

In contrast to the last recession, when the area found itself severely overbuilt, there are now only four buildings, consisting of a total of one million sf, under construction in the suburban market. The report contends that typically, there would be 12 to 16 projects under construction for a total of four to six million sf. "A sure sign of the times," it continues, "and our sluggish real estate market is the near halt of construction of speculative projects."

Not surprisingly for the current state of the market, the report notes that overall absorption for the second quarter was negative 241,989 sf and total absorption year-to-date in the suburbs is negative 492,109 sf. The one bright light is that the pace has slowed since the first quarter's negative 349,091 sf. The Route 128 Northwest market led the way in negative absorption due mostly to tenants in Burlington, Lexington and Woburn giving up space.

Route 128 North and Route 495 North were the only two suburban submarkets with positive absorption. The report emphasizes that this trend is primarily due to space that was previously being marketed as available for lease or sublease and either removed from the market due to companies consolidating from other locations or renewing their lease at their present location.

Rents declined slightly during the quarter with average rents at $18.52 per sf, down from $19.20 during the first quarter. The report points out that this 3.6% decline is typical of what is happening in the marketplace. "Rental rates are the first target in a soft real estate economy and are typically hit the hardest," it says. "The market is also full of landlord concessions, including significant improvement allowances and free rent."

But the report adds that there are a number of "significant" tenants actively seeking space in the suburban markets with Meredith & Grew currently tracking more than 100 tenants in the market with total requirements of 4.3 million sf.

Despite continued layoffs--the report notes that the metropolitan area experienced an overall 2% contraction in the local employment base during the past 12 months--that will continue to affect the office and research and development market through the end of the year, Meredith & Grew concludes that it believes the market is bottoming out and is, in fact, in the early stages of recovery.