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BOSTON-The city’s market recovery is being compromised as many jobs leave the area, according to a 2004 fourth quarter market report released by Cresa Partners in Boston. The report indicates that rents are not expected to rise next year.

“Yes, we have taken the first steps on the road to recovery,” says Joseph Sciolla, managing director of Cresa Partners in Boston, a corporate real estate advisory firm that specializes in tenant representation. “But the landscape today doesn’t resemble what it was like in 1993, when the last commercial real estate recovery was triggered by ademand for office space. A true recovery is all about jobs and today, with no dot-com explosion, we’re not creating many new positions–we’re actually losing many jobs overseas.” Sciolla adds that it may be another five years before the area realizes a complete real estate recovery.

A major obstacle to the recovery, Sciolla notes, is that the road back maybe littered with what he calls “BRICs”–a reference to Microsoft’s recently launched Brazil Russia India China initiative, which requires that Microsoft vendors, in multiple industries, outsource jobs to the countries that Microsoft has targeted, where costs foreducated labor are considerably less than they are in the US. “This outsourcing trend is a shortsighted way of doing business, and it can ultimately hurt our economy,” says Sciolla. “I’m afraid we may see the tail wag the dog as other companies will be tempted to follow Microsoft’s example.”

Citing a recent report by Forrester Research, Sciolla points out that approximately one million jobs are expected to be outsourced to India alone by 2015. “Do the math,” he says. “One million employees who would occupy an average of 225 sf per person–that’s 225 million sf being displaced overseas instead of improving the absorption in US metromarkets.”

Sciolla predicts that as much as 20% of would-be new jobs in the metro areawill be outsourced offshore in the coming years. Another dynamic hindering job creation, he says, is a consequence of increased automation and improved models of efficiency. “In most positions today, seven people are doing the work that 10 performed several yearsago,” says Sciolla.

Sciolla also points to the volatility of key local industries as another deterrent to marketimprovement. “Traditionally, Boston has relied on its well-established industries–financial services, mutual funds, insurance–to provide market stability,” he says. “But today, given the experience of John Hancock, Putnam, Fidelity, Fleet Bank and others, the bedrock of the past is giving way to the shaky uncertainty of the future.”

Sciolla expects the trend of mergers and consolidation to continue, noting the rumor, for instance, that Citizen Bank will purchase Sovereign Bank. Based on these market dynamics, Sciolla doesn’t expect area rents to increase for at least another year. He forecasts that rents will remain relatively flat until the vacancy level, now 16% in the Central Business District and 20% to 25% in most suburban markets, drops to 10%.

According to the report, rents for class A office space in the city now average $41 per sf, down one dollar from the previous quarter, while class B building rents average $24 sf, down $2 from the previous quarter. Sublease deals tend to average 20% to 50% less.

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