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CAMBRIDGE, MA-Meredith & Grew’s latest third quarter market statistics indicate that this city continues to be comprised of two markets and each has a very different story to tell. While the office market is seeing some activity, the overall results are still mixed. The biotech market appears strong but the report points to signs of potential softening.

The city’s overall vacancy rate is now 19.5%, a slight drop from the first quarter rate of 20.4% and second quarter rate of 20.2%. In the office market, transaction velocity improved, according to the report, but net absorption for the quarter was only 30,000 sf, which is attributed to the continuing “malaise” in the tech industry. The office vacancy rate was 22.6%, slightly down from last quarter’s 22.9% but still higher than the 19.8% reported for the end of last year.

Not surprisingly, office rental rates continue to fall with Class A space in Kendall Square and East Cambridge now in the $24 to $35 per sf range; Alewife rents in the $20 to $28 per sf range. Lack of demand and continued weakness in the tech sector will most likely result in further downward pressure on rents. The report concludes that the slow demand and high vacancy rate in the office market will probably continue for the next year or two.

The biotech market was dominated by the two Novartis leases which totaled 758,000 sf. According to the report, these leases account for 74% of the total 1.03 million sf of biotech space leased during the first nine months of the year. Another 272,000 sf of biotech space has been leased to other companies. But, the report warns that the current biotech market is characterized by “weaker underlying demand and softening vacancy dynamics” despite a vacancy rate of only 9%.

There is now 228,147 sf of existing lab space–which are mainly subleases–now available, up from 16,000 sf at the end of last year and up from 102,129 sf at the end of last quarter. Most of the vacant shell space–503,500 sf–has been available for over a year.

Most of the demand for space is from start-ups and young biotech firms. Biotech rents for new and second-generation lab space are in the $53 to $63 per sf range, depending upon the quality and intensity of lab improvements.

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