Let's think jobs as we talk about the commercial real estate market. This includes office, industrial and retail. Todays article will focus on the office market.
The office market affects us all in one way since it directly reflects the job market. As jobs increase, so does absorption of office space, and of course, the opposite works as well. As jobs grow, our economy follows pace. As jobs shrink, we find ourselves where we've been for a couple of years.
So, if the office market is a barometer of the job market, let's take a look at four Massachusetts sub makets and see hw we're faring.
Obviously, the Boston and Cambridge markets are the largest in Massachusetts and the most important economic engines. Both areas have signifcant Class A office buildings and attract the financial and bio tech markets respectively. These two sectors are important to the state's economic and income tax engines, so let's compare these two markets with the Boroughs (I-495/West) and the Worcester Metro markets and see how each is doing.
Thanks to the support of The CoStar Group, we're able to show you some exhibits drawn from their 2nd Quarter 2010 Office Report. What the reports show generally is that there have not been many new office buildings coming on line for the pst couple of years. Unless you're an office building developer, this is good news as it gives the current office inventory a better chance to play catch up with the market.
So, let's first glance at the Boston Market. This graph shows: 1) Deliveries of new space, 2) Absoprtion of all office space, 3) Vacancy rate. The Boston market has had two quarters of negative absorption averaging about 400,000 square feet per quarter. Vacancy rates have, on average, been rising since the 4th quarter of 2008 and now stand at about 9.3% (if you would like to see a little more detail, just click on the graph). Boston's average office rental rate has improved (decreased) by $2.00 since the first quarter to $33.00/SF.
Cambridge like Boston, has been seeing a generally increaseng vacancy trend and now stands at 11%, but here the average rental rate actually increased by $2.00/SF.
The Boroughs market has seen positive absorption for the last quarter with average rental rates driven down to about $18.00/SF from $19.75 in the first quarter of 2009. The graph suggests a tendency to stabilize in that area. Absorption was up and vacancy declined by a point to 11.5%.
The Worcester market has done the best in terms of absorption and reducing vacancy rate. It is now down to 8.4% and is on a decliining trend. There have been no new office projects on line for two years, and none forecast at the moment. This will continue to allow the current inventory to be absorbed. At the is time, rental rates have declined from $17.75 to $16.25. That doesn't encourage new construction in the short run.
We're all waiting to see the employment figures begin to grow more quickly. There have been positive signs in Massachusetts, even compared with the rest of the country, but not enough yet to fill our vacant spaces. Stay tuned for more on that subject.
And again, if you would like to see a little more detail about each market, just click on that chart.
This article was submitted by Robert Yale, CCIM
Sperry Van Ness/ComVest Realty
Bob can be reached at bobyale@svn.com, or
508-351-7079