Market trend: office vacancy rates show whether Boston’s economy is getting better or worse
Six of Boston’s submarkets recorded office occupancy gains in the third quarter. That’s essentially where the good news ends for the city’s office market.
Last quarter was another difficult one for Beantown’s office landlords, according to Boston Real Estate Times. Vacancies increased throughout the city, particularly downtown.
Overall vacancy surged to 15.6 percent in the third quarter following the sharpest increase since the start of this economic cycle, according to data from Cushman & Wakefield. The rise in vacancies was driven by the city’s downtown submarkets, where vacancies climbed to 18.4 percent, jumping six times higher during the quarter than its suburban counterparts.
Leasing activity across the market dropped nearly 30 percent from the previous quarter. There were 1.2 million square feet of leases signed last quarter in Boston and 4.4 million square feet year-to-date.
We’ve lost several of our larger employers, here in Boston, to mergers. Gillette, FleetBayBankofBoston, John Hancock, are the big names.
This, along with the recession of 1999 – ? has caused the office vacancy rate in Boston to jump. It’s now at 11.1%, according the Spaulding & Slye Colliers 2nd quarter 2005 report (warning, PDF file). Boston has over 57 million square feet of office space (I think that is Greater Boston – metropolitan Boston, not downtown, but not sure). This means there is over 5.7 million square feet of vacant office space.
That’s a lot of space to lease. Especially since, according to the report, the companies looking to lease space these days tend to be smaller in size. There are no major corporations signing up to move into Boston. It seems we can only count on the companies already here to help.
Things could be worse, however. In New York City, 4 million square feet of office space is going to open up, once the area around the World Trade Center is redeveloped. Four million square feet of space. In an area probably not #1 on the list of locations most popular with companies.
As the New York Observer put it, they need tenants…lots of tenants.
Office vacancy rates are a good way to see how things are going with the Boston economy. If companies are hiring, they lease more space. If they aren’t, they will put the space out for sublease. I believe that the leasing of space takes place months before the space is needed, so it’s an early sign of whether times are getting better … or worse.
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