BY Rob Nahigian
The commercial real estate market in Massachusetts has been riding behind the residential market, so there is a lag. With financing issues in the residential sector, there has been spillover to the commercial side as banks are hesitant to fi nance purchases.
But there is a glimmer of improvement in the commercial market, and when I teach residential REALTORS® about the commercial sector, I explain that while it may not be their core business, industrial could prove as supplemental referral income or more, and it is worth it to be informed about the niche.
Below is a glimpse of the Massachusetts market conditions presented by panelists at the state’s Society of Industrial and Office REALTORS® (SIOR) and National Association of Industrial and Offi ce Properties (NAIOP) recent annual Boston Commercial Real Estate Mid-Year Market Roundup.
Trophy buildings are selling in the 5-6% cap rates. There were 21 buildings that sold, totaling $5 billion, while in 2009 the total sold was $27 billion. In 2009, the amount of equity raised totaled $24.2 billion. In 2010, 17 real estate companies, IPOs, etc. raised $6 billion. Most of the demand is for offi ce building investments.
The Boston Office
The current absorption rate has been fl at. There are 11.9 million square feet of vacant space vs. 20.3 million square feet available. From 2011-2014, approximately 2.8 million square feet of leases are expiring. New construction is projected at a total of 504,000 square feet, but 70% of that number is due to the development of Fan Pier. The Back Bay had 45% leases that represented relocation, and 55% were renewals. The forecast for rents in the Financial District suggest high-rise buildings will increase, mid-rise will remain steady, and low-rise will see a rent reduction.
The Suburban Market
There should be increasing rents in selected Class A buildings due to a sense of urgency. The absorption rate has been negative for the first quarter of 2010, but it is better than in 2009. Route 128N was the only area that had positive absorption in the fi rst quarter 2010. The overall Route 128 vacancy is 17% with an asking rent of $28 per square foot.
The Cambridge Market
The combined Cambridge office and laboratory market recouped some of the occupancy losses of 2009, posting 196,795 square feet of positive net absorption in the fi rst quarter of 2010. Vacancy continued to expand, reaching the highest level since 2004. The amount of available space decreased 1% over the quarter, but remained 2% over fi rst quarter 2009 levels. Laboratory vacancy remained above $1 million square feet for the third consecutive quarter, despite several sizeable lease executions. Limited sublease and Class A supply put pressure on the average offi ce asking rate of $34.16 per square foot, which inched upward slightly.
Looking ahead, the future appears positive, but it will take time for market indicators to return to pre-recession levels.
Rob Nahigian is teaching Commercial Real Estate Transactions and Evolution of the Commercial Product-Advanced at the MAR Conference & Tradeshow.