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BOSTON-For the first time in five years, the city’s office market experienced its first resurgence in leasing activity in 2005 with more than 1.6 million sf of positive absorption, a report released by CB Richard Ellis/New England found. The office vacancy rate in Boston, which has about 66 million sf of office space, dropped to 11.7 % with just two weeks left in the year, declining 1.5% from 13.2% at the end of 2004.

David Fitzgerald, executive vice president and partner with CBRE/New England, tells GlobeSt.com that 2005 marked a turning point for Downtown Boston’s commercial market. He says the turnaround is due in large part to the growth of both new and existing companies, increased tenant demand and a continued flight to quality by businesses seeking to capitalize on rental rates.

Fueling the demand, says Fitzgerald, was the growth of small to mid-sized companies which helped tighten the city’s overall inventory and pushed up the average rental rate slightly from $33.02 to $34.38 per sf. The conversion of two million sf of office space to residential also constricted availability, he notes.

The report, which covered Boston’s Central Business District (Charlestown, Fort Point Channel, Midtown, North Station/Waterfront, South Station, Dorchester, Allston-Brighton/Longwood and Fenway/Kenmore Square neighborhoods) also found there was more than 2.5 million sf of gross leasing activity and more than 200 transactions in the city last year. Of that activity, more than a million sf was sublease space that was either leased, taken off the market or had terms expire.

While every area of the city benefited from the resurgence, Fitzgerald says the Back Bay and the CBD benefited the most. The Fort Point Channel area and the Leather District and South Station areas also showed considerable improvement. The strong demand for office space has benefited owners as well as the tightening market forced the average rent up slightly from $33.02 per sf to $34.38 per sf.

Rents continued to remain strong in high-rise office space in the city’s class A towers as well where asking rents have increased to the low $50s per sf and in some cases reached the low $60s. Conversely, rents for low-rise space has remained flat, averaging between the high $20s and high $30s per sf. Companies also rushed to complete deals for discounted rates before the market cycle turned and rents increased, according to the report.

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