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BOSTON-The Boston office market has seen 546,000 square feet of negative absorption in Q3 of 2009, but this increased vacancy only 0.5%. Landlords reactions are the same as they are everywhere else in the nation, which was a lowering of asking lease rates to $35.78, down 5.7%. With this said, the greater Boston Metro area is not spiraling down the drain, especially in comparison to the monumental tech bust that slapped it in the early 90s.

“[Boston] saw the marketwide vacancy rate increase by 16.1% in 14 quarters [during the tech bust],” Richard Barry Joyce & Partner’s VP of research Brendan Caroll tells GlobeSt.com. “So for 3.5 years we saw a 16.1% increase in vacancy, and because of the discipline in this market, we have only seen a 1.9% increase in vacancy during the present negative absorption trend.” The 16.1% increase was a cataclysmic result of a confluence of “exposure to dire local market conditions,” including imploding tech companies combined with over-building.

Caroll explains, that “16.1% was the increase in vacancy from 4.4%, at the lowest market vacancy, to 20.5%.” During this current market, the low was 13.1% and it is only up to 15%, according to RBJ’s officeSTATus report. “So thus far, we haven’t really come to the end of this thing yet,” he points out. “But it does appear in the outset that this is a much more restrained situation.”

This mitigating difference between the two downturns is an overriding point for Boston’s current predicament: It is now one of the more fortified real estate areas, similar to Washington, DC. The CBD is a good example of this trend.

“Vacancy has increased,” Caroll says. “For example, in the financial district there has been five consecutive quarters of negative absorption, but it is important to note that vacancy is still at 11.4%. So, while there has been an increase, and while there has been a trend that has sustained over five consecutive quarters, it’s important to note the restrained manner in which this negative absorption is taking place.”

The positivity about Boston’s future is driven by the lack of overbuilding that is on the horizon, sparing it from the skyrocketing vacancy rates anticipated in areas such as Phoenix. The pipeline for Boston is thankfully sparse. “On the eve of the tech bust, there was 2.2 million square feet of construction underway marketwide,” Caroll recounts. “Today we only have 550,000 square feet.”

Boston is also withstanding the nationwide trend of joblessness, which is buttressing the vacancy rates. Caroll outlines the issue in terms of the tech bust, pointing out that over an 18-month period, the Boston-metro lost 10.4% of its workforce compared to a 3.2% figure nationwide, whereas during the current recession the converse is true. Boston has only lost 3.7% of its workers as opposed to the rest of the country which, as of RBJ’s report, was staring at 4.8% of its workers losing their jobs.

Rental rates, however, are still under a lot of pressure. Asking lease rates during the same five-quarter period have dropped from $65.98 to $49.02 per square foot, which, as Caroll points out, is a 26% decrease in a very compact five-quarter period.

Since rates are driven by absorption and absorption is driven by employment, the employment outlook is a good indication of when absorption will turn around. Last time, Caroll explains, when the ISM Employment Index stayed above 50 for eight consecutive months, then Boston saw a positive absorption trend. Boston just posted its first month above 50.

However, landlords shouldn’t pop the corks on the champagne just yet. Traditionally, managers tend to over-react to negative and optimistic news, Caroll says. “Because there was such restraint on downsizing and firing activity, did they really over-fire this time?” Caroll ponders. And this, of course, begs the question: “Is there really a pent up desire or need to increase headcount?” With these questions in the air, it was 10 quarters last time until landlords saw the ability to begin raising rental rates again, Caroll says.

The positive note here is that with less lost space, it might not take those full 10 quarters to regain pricing power. “There was over 14 million square feet of negative of absorption in the last downturn,” Carol explains. “This time there has only been an accumulation of marketwide of 1.9 million square feet of negative absorption.”

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