RBJ officeSTATus: Greater Boston Net Absorption Up 2.6 MSF Since Mid-2012

BOSTON—It is all good—or nearly so—for the region’s office market, according to a mid-year review by Richards Barry Joyce & Partners that has only a fraction of submarkets posting negative numbers, and even those red results should be presented with a degree of optimism, according to RBJ Senior VP of Research Brendan Carroll.

“We are seeing improvement pretty much across the board,” Carroll says. Just five of 18 submarkets are down on net absorption since mid-year 2012 in RBJ’s officeSTATus survey of 179.9 million sf where vacancy is now at 14.1 percent overall thanks to another 818,000 sf gain in net absorption during Q2. Metropolitan Boston enjoyed the lion’s share of that action, up 647,000 sf in positive net absorption for 70.0 million sf of supply that is now 10.2 percent vacant and averaging $50.95 per sf on asking rents, a 2.3 percent improvement since last summer.

As to the handful of submarkets not on Boston’s rally train, Carroll insists, “it could be worse and it has been worse,” alluding primarily to the Interstate 495 North area that is at 23.9 percent vacancy after negative net absorption of 55,000 sf in Q2 has the submarket down by 208,000 sf over the past 12 months. Battered in the 2008 recession, I-495 North has not seen the recovery trickle up from Route 128, and in fact is a big loser in this decade’s migration towards urban centers, most famously of late seen in Converse electing to move from North Andover to Boston’s waterfront. Still, Carroll insists progress is being made, citing a 32 percent vacancy at mid-year 2004 and a series of requirements circulating that appear to be scouting venues in I-495 North.

A regular member of the worst performers absorption-wise, I-495 North is joined by I-495 West (-51,000 sf) and two surprise entries, Boston’s Back Bay (-43,000 sf) and Kendall Square (-259,000 sf). The fifth is another traditionally solid district, North Station, which RBJ has being off slightly by 27,000 sf since last June.

“East Cambridge and the Back Bay are doing just fine,” stresses Carroll. It is “the opposite” climate of that found in I-495 North, he says, which has plentiful options available should companies so desire to expand or relocate there, whereas the aforementioned implosion into the urban core has eroded venues to find adequate space, especially now that Kendall Square has become the darling of technology titans such as Amazon.com, Google, Microsoft and Twitter who this decade have gone from leasing zero space in the submarket of 6.8 million sf to filling one million sf, and clamoring for more, says Carroll. Another 475,000 sf of availability has recently been removed in favor of fresh commitments now being built out for occupancy. “It is an absolute paradigm shift in Cambridge where these companies with billion dollar capitalizations will pay whatever it takes to get the space they need,” outlines Carroll.

It is perhaps no surprise, then, that officeSTATus has Kendall Square rents surging since Q2 2012 by 12.6 percent to $55.80 per sf, second only to the $61.87 per sf in Boston’s “struggling” Back Bay, that figure up 11.8 percent in the same time period. Across town, North Station rents have remained flat at $28.00 per sf with only 14,000 sf of positive net absorption in Q2 across a district registering just 6.7 percent vacancy for 2.18 million sf tracked by RBJ.

All eight Boston submarkets were on the plus side on net absorption during Q2, RBJ reports, led by 314,000 sf in the Financial District and 166,000 sf for the Seaport where its supply of 7.1 million sf has a vacancy rate of 12.9 percent and average asking rate of $51.07 per sf for Class A buildings. Some 400,000 sf has been absorbed in the Seaport YOY.

Rents are lower and vacancies higher along Route 128 than in town or Cambridge, but Carroll says the roadway is feeding off a strong 2012 with another busy start this year, underscored by Route 128 North’s gain of 276,000 sf in Q2 to put it on the plus side by 715,000 since June 2012. Headlined by continued tenant affection for Burlington, the submarket has seen rents grow 4.3 percent over the past year to $25.47 per sf. It has narrowed the gap with perennial suburban leader Route 128 West, which RBJ puts at $30.41 per sf, that a slight drop of 0.3 percent since last year. Route 128 South is at $21.31 per sf, down 1.2 percent YOY.

Even in retaining a flat rent line of late, Route 128 West has been a dynamo in filling space, relays Carroll. Net absorption of 186,000 sf in Q2 makes it 551,000 sf YOY, plunging the vacancy rate from 16.2 percent to 13.4 percent. “There has been a tremendous acceleration in velocity in Route 128 West,” says Carroll. “It is really something to take notice of.” Another interesting data point in the RBJ review is that the 51.9 million sf occupied along Route 128 is the most ever, well above the 48.1 million sf recorded in mid-year 2000 just as the technology boom was driving velocity. “People ask what the heyday of Route 128 was,” observes Carroll, responding with, “the heyday is now.”

As to I-495, the total inventory of 33.6 million was off by 205,000 sf in Q2, done in by I-495 West at -163,000 sf for 15.9 million sf. The far smaller I-495 South submarket of 2.6 million sf was up by 12,000 sf in Q2 to put the figure at a healthy 266,000 sf YOY and slip the vacancy rate down to 15.5 percent. Rent-wise, I-495 West is at $20.89 per sf, up 0.5 percent from last June and I-495 South is $20.20 per sf, a 0.4 increase. I-495 South is averaging $18.54 per sf, but that represents a 2.3 percent improvement from last summer.