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BOSTON-Spotty activity and tepid fourth quarter absorption meant for an uninspired ending to 2007 in the office leasing sector, but industry professionals at Richards Barry Joyce & Partners say the performance was better than the numbers might suggest. Not only did weaker markets such as Interstate 495 North finish admirably, an RBJ overview provided to GlobeSt.com shows a continued tightening of space in many regions and continued accretion of asking rents.

“There are reasons to be very optimistic,” says RBJ VP Brendan Carroll, whose research team estimates fourth quarter net absorption at 294,000 sf, barely one-third of the average of 824,000 sf recorded over the past nine quarters. Carroll attributes the downturn more to a short-term anomaly than the start of a depressed trend, while RBJ principal Brian McKenzie stresses that “the fundamentals of the market are still doing very well,” and says the fourth quarter was better than he had anticipated given a torpid summer. One of McKenzie’s territories is the I-495 North area that seemingly has recovered from a brutal stretch that began when the technology heavy submarket was crushed by the tech crash of 2001.

According to RBJ, the 14.1 million sf submarket represents just 8% of the Greater Boston inventory, but registered 39% of all the positive absorption recorded in the fourth quarter. “It has been in the dumps for a long time, but there has been a noticeable transition,” says Carroll. The submarket still has a vacancy rate exceeding 25%–the highest on I-495—but McKenzie says rising rental rates in core areas such as Waltham and Burlington are pushing cost-conscious tenants into the northern area. Besides the deals that did land in the quarter, such as Circles taking 39,000 sf at 300 Apollo Dr. in Chelmsford, McKenzie says there are several negotiations that have carried over into the new year.

“I think it looks pretty vibrant for the early kickoff,” says McKenzie, who adds that another trend that became entrenched late in 2007 and will be a major force going forward is the sustainability movement. Buildings that do not aspire to fit certain environmental standards could be left by the wayside, says McKenzie, presenting potential troubles for older product. “There is a lot more awareness,” says McKenzie of green design, while Carroll notes there is already a dichotomy of success based on age. In I-495 North, the 2.1 million sf of space delivered since 1995 is 10.8% vacant, he notes, whereas the remaining inventory is at 27.7%.

Because of the green mantra and a need to compete for employees, RBJ anticipates that the flight-to-quality trend seen in recent years could accelerate this year, with some firms not tied by geography willing to gravitate to top-level space. Cambridge companies proved especially mobile in 2007, says Carroll, as a 6.6% office vacancy rate forced the hand of many long-time Cambridge denizens to look elsewhere. In the coming year, markets such as Waltham will continue to benefit from that surge, he says, while Boston is also becoming another option for such companies.

Not all Cambridge tenants are leaving, relays Carroll, with owners of smaller class B properties in Harvard Square and beyond benefiting from the desire to retain that prized address. Not only are class B asking rents up 14% in the city, RBJ says the vacancy rate in the Alewife district on the western fringe is below 10% vacancy for the first time since 2001.

Cambridge posted 123,000 sf of positive absorption in the fourth quarter. Boston also fared well, finishing up plus-203,000 sf. The Cambridge vacancy rate dropped by 1%, while Boston is now at 9% thanks to a .3% decline. Submarkets that saw negative absorption for the quarter included Route 128 North and South, plus I-495 South, which dropped by 98,000 sf.

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