Office Space Disappears as Vacancy Rate Declines

"This is the most significant quarter in positive upswing," Brendan Carroll, who prepared the report on the region's office trends as director of research for Richards Barry Joyce & Partners, tells GlobeSt.com. "We're seeing a definite recovery."

It was the seventh straight quarter of positive absorption for the metro area office market, which has been suffering from double-digit vacancy rates for years since the state's high tech bubble burst in the early 1990s.

Carroll says the uptick in absorption rates has been largely driven by the city's suburban markets, particularly Cambridge, Waltham and Newton, which account for 63% of the market but 83% of all absorption. Cambridge was a strong winner in the absorptioncategory, taking 173,000 sf of office space off the market and lowering the city's vacancy rate by 1.3% to 16% during the quarter. The biotech boom helped the city a variety of other upstart businesses also fueled growth, not only in Cambridge but in the suburban markets as well, Carroll says.

Boston also fared well in office absorption, with 410,000 sf of growth, accounting for a 0.9% absorption increase. Small to mid-sized users drove the numbers, particularly in the Back Bay, where class A leasing rates increased 93 cents to $39.77 per sf. That pricing put Back Bay office space at a slight premium over the Financial District for the first time in the city's history.

Positive absorption remained flat in the Financial District despite occupancy gains, however, due largely to the loss of a single tenant, which put 245,000 sf back on the market. The Financial District is also facing future losses, the study notes, when OneBeacon Insurance relocates to the suburbs and Fidelity Investment gives up 300,000 sf in 2007. Improving market dynamics should help achieve equilibrium in that Central Business District over the next two to three years, the report notes.