"Discipline has returned to the market," said DTZ FHO Partnersprincipal Brian Hines in assessing the 125-million-sf suburbanflex/office sector. Hines described activity as "slow and steady,"even though the suburbs are on pace for three million sf of netpositive absorption this year--triple the annual average--and dealsare being completed in the mid-$40-per-sf range in core areas.Although rents are escalating, and the 1.2 million sf of new officeconstruction is just 1% of the inventory, prospective tenants areunfazed by upward pricing and dwindling inventory, said Hines. Onereason could be the 20 million sf of fallow product, including 44options featuring 100,000 sf of contiguous space and seven inexcess of 200,000 sf, while other companies are stepping lightlydue to the uncertain economy and fallout from the creditcrunch.

As in the case of Downtown, newer product and preferredlocations are faring best, noted Hines, with the Interstate 495North belt among those still struggling. Sporting a 23%availability rate, "that area still has a ways to go," said Hines,although communities such as Bedford, Billerica and Chelmsfordappear to be catching the eye of price conscious tenants, offeringhope there. Patience is the key for landlords, said Hines, withsublease supply on the wane and tenant demand expected to reboundin early 2008. "That's a good recipe for the suburban market," hesaid.

Organic growth should help the suburbs feed off the recentimprovements, said Hines, but he was less sure that threats amongCambridge and Downtown companies to migrate outwards will lead tosubstantial suburban absorption. Although companies such as theBank of America, First Marblehead and J.P. Morgan have reportedlysuggested such a strategy, Hines said firms that rely on youngeremployees often need an urban office to satisfy lifestyle andtransit demands. "Our prognosis right now is that [widespreadmigration] is not likely to happen," he said, which if true wouldbe good news for Downtown and Cambridge landlords who areaggressively pushing rents.