Beantown is booming.
The third quarter of 1998 was another impressive quarter in Boston as
direct vacancy rates remain under 5 percent in the city’s Central
Business District, according to Cushman & Wakefield of New England, an
international real estate services firm. That company also forecasts
double-digit growth in Boston for 1998 as compared to 1997.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
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Tumultuous times on Wall Street have not dimmed the demand for
commercial real estate in Boston. According to Cushman & Wakefield’s
third quarter research for 1998, in Boston’s Central Business District
(CBD), the overall direct weighted asking rent increased 11.2 percent to
$32.92 per square foot over year-end 1997 and is projected to increase
15 percent for all of 1998. Lack of available space continues to
pressure asking rents as direct vacancy rates remain under 5 percent —
most recently at 4.4 percent, according to the study.
Thomas Collins, the company’s senior managing director, does not see the
commercial real estate market in Boston slowing down anytime soon.
“We believe that concern about major unrest within the commercial real
estate market is unwarranted,” Collins said. “We are projecting strong
growth for the rest of 1998, and we do not see anything significant that
would foreshadow a slow-down in the marketplace. New projects continue
to move forward on schedule in both the Central Business District and
the suburban markets.”
And there appears to be no reason to expect a letdown in the fourth
quarter.
Cushman & Wakefield expects solid growth to continue through the fourth
quarter in both the CBD Class A and B markets. CBD Class A direct
average rental rates have skyrocketed to $42.32 per square foot, an
increase of 13 percent from the fourth quarter of 1997. Class A rents
are projected to increase 17 percent over 1997. In the CDB Class B
market, ongoing demand has pushed direct average rental rates to a
record $30.26 per square foot, up 13 percent over the 1997 year-end.
According to Cushman & Wakefield, 1998 will see an overall increase in
commercial real estate rentals of 17 percent.
Charles Newth, of McFarland & Finch, a Boston-based commercial real
estate firm, is not surprised by such numbers. He points out that an
office building has not been built in downtown Boston since 1993 and as
a result, “we’re running out of space.”
“It’s a really, really tight market,” Newth said. “There is little space
to be had and as a result, the demand is driving the rents up. I suspect
that this is going to happen for some time.”
Newth tempers his enthusiasm to some degree by predicting at least a
partial fall-off in investment sales. But he does remain confident that
the market “on the ground” will hold strong.
Why is Boston so hot?
Newth believes it is the cross section of businesses. Whether it be
financial services, health care or high technology, he said, Boston
draws a wide array of industries.
“We have such a great diversity of businesses here,” he said.
The commercial real estate boom in the CBD appears to be stretching to
bordering areas as well, including Cambridge. Leasing activity in
Cambridge, according to Cushman & Wakefield, is on a record pace with
overall year-to-date leasing activity encompassing more than 1.2 million
square feet. The overall direct vacancy rates in Cambridge are at 3.7
percent, with no new speculative construction in the foreseeable future.
As with Boston’s CBD, the lack of space continues to pressure direct
average rental rates, which have risen to $34.91 per square foot,
according to Cushman & Wakefield. Asking rental rates are up 15.7
percent over the 1997 year-end and, by year’s end, are projected to
increase by 21 percent compared with 1997.
Cushman & Wakefield research also shows that the city’s absorption rate
is driving the suburban markets.
The Metrowest, Route 128, and Route 495 markets are approaching record
levels for net absorption and leasing. Through the first three quarters
of 1998, according to Cushman & Wakefield, the suburban markets absorbed
over 1.7 million square feet, surpassing the 1997 mark of one million
square feet and closing in on the record 1.9 million square feet
absorbed in 1992.
While the addition of new space has caused the overall suburban direct
vacancy rates to increase to 7.5 percent from 6.6 percent in the fourth
quarter of 1997, the suburbs are just a half million square feet away
from surpassing the 5.4 million square feet leased in all of 1997.
Cushman & Wakefield is tracking over 2.1 million square feet under
construction in the suburbs, half of which is build-to-suit and half
speculative, as well as 1.1 million square feet under renovation.
“The Boston CBD and Cambridge direct vacancy rates are under 5 percent
and the suburban construction continues to be welcomed and absorbed,”
Collins said. “We are impressed by the market’s absorption and leasing
rates.
“We expect this positive trend to continue as new space comes on-
line in the fourth quarter.”
