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GREATER BOSTON-Office vacancy rates have shot up in this area. But local brokers insist that it is the economy and not the local commercial real estate market that is slowing.

In a recent third quarter report put out by Cushman & Wakefield, the overall vacancy rate has soared up to 16.5%, up drastically from last year’s 5.3%. But Thomas Collins, senior managing director for the firm’s New England offices, maintains that it is largely the sublease space that is to blame for the increase in vacancies, indicating that the market here is not in real trouble. In the city’s central business district, vacancy rates were up to 11.1% for this quarter from 7.4% in the first quarter. Collins notes that 4% of the vacancy rate is due to sublease space with only 7.1 % direct vacancy. ” That would be considered favorable anywhere,” he tells GlobeSt.com. “ We don’t have a real estate problem, we have an economic problem.”

Collins points out that the economy was growing at an unbelievable 6% too 8% until recently and now companies simply need less space. Rates are still averaging around $50 per sf in the CBD and over $60 per sf in the Class A building market.

Cambridge’s vacancy rates are considerably higher for this past quarter at 13.7%, whereas a year ago the rate here 2%. But again Collins points out that 6.7% of that is direct space. The rest is in subleases from the tech firms and dot-coms that at one time dominated the market here and now either consolidated or went out of business.

“This is all a reflection of a lack of demand which is a direct result of the economy,” says Collins. “The supply side is under control. Demand is the problem and no deals are being made.” It is even difficult to ascertain what the current rates are here, although Collins is quick to note that the $70 per sf some building owners were getting last year were not typical for the area. “Rents were not sustained at those levels,” he says. “Six transactions happened that were that high.”

Route 128 had a 16% vacancy rate for this quarter, according to the report, but again a large portion of that is sublease space, mainly due to large companies that did not do as well as expected and couldn’t afford to grow. The Route 495 West area had a good quarter in the industrial and flex space market but its office space vacancy rate was up to 18.6% this quarter, with a third of that due to sublease pace. The Routes 495 North and South markets also had very high vacancy rates with the former up to 15.6% and the latter up to 29%. But these areas have much smaller markets–in total they have about seven million sf of space–which makes each transaction that much more significant. In contrast, Route 128 market has about 20 million sf of space.

While Collins acknowledges that vacancy rates are clearly higher than they were, he contends that the direct vacancy rate is not excessive. “In 1989, we had a 14% vacancy rate and buildings were being built left and right,” he says. “We’re not in a position where we over built. This is simply a demand problem. An improvement in the economy will cure everything.”

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