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CAMBRIDGE, MA-Much has been made about this city’s office market recovery, but on paper, the resurgence appears to have eased during the first half of 2007, especially outside the core Kendall Square district. According to industry observers, however, there is an undercurrent of activity likely to break through over the near term.

“It has felt a little soft, but there are a lot of deals floating out there,” says Jones Lang LaSalle VP John Osten, whose firm registered negative absorption of 33,000 sf for Cambridge office space during the second quarter and just 55,000 sf of positive absorption through midyear. Cushman & Wakefield estimates the mark at minus- 61,000 sf for the quarter and negative- 6,000 sf for 2007. Grubb & Ellis also has absorption in the red for both periods, reporting minus- 107,000 sf during the quarter and a dearth of 55,000 sf YTD.

Osten cites a couple of factors for the tepid results amidst an atmosphere of renewal, mostly attributed to accounting anomalies. Among the biggest leases announced in the second quarter, for example, was Microsoft’s commitment to 180,000 sf at One Memorial Dr., a high-profile agreement that received advance fanfare after the tenant leaked news of the deal prior to completion. While declining comment on that element of the negotiations, Osten relays that the lease was not inked until early this month, leading to the statistical vacuum.

“You’ll see a much stronger third quarter,” says Osten, whose clients could help fulfill that assessment. Besides handling the Microsoft lease, JLL colleague Debra Gould and Osten are involved in the Akamai Technologies renewal and expansion to 257,000 sf at Cambridge Center in Kendall Square. Osten would not discuss the status of any pact beyond acknowledging the significance of the Microsoft commitment. “It’s a big deal anywhere,” he says.

Much like the absorption figures, office vacancy rates for Cambridge vary by survey due to differences in methods and samplings. C&W tracks 16.1 million sf in 156 buildings, including 91 properties and 11.6 million sf in Kendall Sq., with a mid-year vacancy of 7.2% and 6.8%, respectively. JLL was similar, estimating 7.1% vacancy overall for 16.4 million sf and 6.5% for the 12.3 million sf surrounding Kendall Sq. Grubb & Ellis posts an 11.6% rate for the 9.2 million sf its research team tracks citywide.

Among the more upbeat overviews comes from Richards Barry Joyce & Partners. RBJ’s mid-year analysis of Greater Boston’s office sector estimates that 178,000-sf was absorbed in Cambridge during the second quarter to drop the vacancy rate for 13.1 million sf to 11.9%. The results mark the seventh straight quarter of positive absorption for Cambridge in the RBJ “officeSTATus” survey. RBJ President Robert Richards says the tenor on the street is of a continued momentum in velocity no matter how much red is coloring the mid-year reports.

“It was a very good first half of the year,” offers Richards. RBJ played a key role in one of the biggest transactions of 2007 when Monitor Group opted to stay at 2 Canal Park in East Cambridge. That agreement with landlord TA Associates, which was brokered by RBJ principal Steve Purpura, involved nearly 200,000 sf. The business-consulting firm had indicated a willingness to depart from its custom-built headquarters, possibly to the suburbs, but those fears were allayed when the long-term extension was finalized this spring, a deal initially reported by GlobeSt.com.

Regardless of the present situation, industry professionals are almost unanimous forecasting Cambridge’s office rents will continue to move up while the supply of space will head in the opposite direction. RBJ released data showing that East Cambridge could be out of office inventory by next year, the earliest likelihood for any submarket in Greater Boston. Besides the lengthy permitting process, the chances of bringing on new product could be hampered by more lucrative returns for laboratory space. Millions of square feet have already been converted from office functions, and future projects will likely lean in that direction, predicts RBJ director research Brendan Carroll. There is zero office space underway in Cambridge right now, according to RBJ.

The lack of supply could force tenants to look elsewhere, as some are reported to be doing, but rising rental rates indicate landlords are achieving desired growth. JLL puts the average rate at $39.94, up from $34.24 after the first quarter, while Grubb & Ellis estimates a Class A figure of $41.33 per sf and $28.65 per sf for Class B buildings. RBJ says average Class A rates were up $2.82 in the quarter to $39.77 per sf, with top rents of $57.50 per sf at Cambridge Center. That is a 70% gain from the $34-per-sf high-water mark recorded in East Cambridge last summer, according to Carroll.

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