BOSTON-The city’s market continues to favor tenants as rents have bottomed out, according to a mid-year market review by Cresa Partners Boston. The report also does not anticipate much expansion activity in the near future.

“Now that rents have bottomed out, you might say it’s ‘bottoms up’ for corporate space users,” says Joe Sciolla, managing director of the firm. “For tenants whose leases are expiring, this is a perfect time to renew and restructure, locking into very favorable rates for the next five years or so. The market continues to be sluggish, but that’s good news if you’re a tenant.”

Sciolla says hundreds of local companies that signed office leases at the peak of the market five years ago have contracts that are about to expire. “Rents have almost been cut in half during the last five years, so companies have an opportunity to leverage the soft market conditions and save an average of $5 to $10 per sf, which can translate into many thousands of dollars,” he points out.

According to the report, asking rents for class A office space in the city is at $39 per sf, with class B space going for $23 per sf. Both numbers are down one dollar from the first quarter. Vacancy is now at 18% in the CBD, up a couple of points since the first quarter, due mainly to Fleet/Bank of America putting 450,000 sf at 100 Federal St. on the market.

Sciolla doesn’t anticipate that rents will rise until well into 2005, when the vacancy rate will come down to about 10% to 12%. “For the rest of this year, we anticipate that up to 65% of office transactions will be for lease renewals and restructures.”

The report predicts that the commercial real estate recovery will continue to be compromised because of slow job growth, a situation that is exacerbated by the mergers of Bank of America/Fleet and Manulife/John Hancock. Other mitigating factors include job outsourcing and the increased productivity of workplaces through technological advancements.

“We’re seeing a little more velocity in the metro Boston market, especially for small and medium-sized office transactions,” says Sciolla. “But we don’t anticipate major corporate expansion or relocation in the immediate future.”

Fueling the economic rebound in Greater Boston will be small businesses, especially in the professional and service sectors, not the larger financial companies that have been the area’s bedrock in the past, says the report. Most of these companies are looking for 5,000 to 20,000 sf.

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