Boston commercial r/e market, ''negative absorption.'' a stroll along 128, For Lease !
Gulf between consumer, business economies gaping
boston.com
By Charles Stein, Globe Staff, 4/21/2002
I heard two local real estate stories recently that, taken together, illustrate the curious nature of the current economic scene.
The first was told to me by a friend who owns a small office building in Boston. A year ago he was trying to raise his tenant's rent. Last week he told me the same tenant had moved out of his building for nicer digs in a downtown office building - at a lower rent than he was paying in my friend's building.
The second story came from an acquaintance who just sold his house in a nearby suburb. He put an ad in the Globe on Sunday. The ad attracted 20 would-be buyers. Five of them made bids. The house sold in one day for more than the asking price.
Call it a tale of two economies: the business economy and the consumer economy. The first is rotten; the second robust. American corporations are just emerging from one of the worst profit recessions in history and they are still reluctant to spend money on anything. American consumers, by contrast, breezed through the recession as if it never happened, and continue to spend freely on everything.
In real estate, the gulf between the two worlds is gaping. In the three months of this year the nation's office buildings experienced ''negative absorption.'' In English, that means business tenants gave up more space than they took. Nationally the office vacancy rate is at an eight-year high and rents are falling. On the residential side, the first quarter was terrific. Home sales were strong and prices kept rising.
In Boston, the story is the same but even more extreme.
''Boston is one of the poster children for what is wrong with the office market,'' said Susan Hudson-Wilson, chief executive of Property & Portfolio Research, a real estate research firm. In Boston the office market deteriorated faster than the weather on a spring day. In the first quarter of 2001 the vacancy rate in Greater Boston was 5.8 percent, according to Reis Inc., a New York research firm. Today the rate stands at 16 percent, which is above the national average.
What happened? The technology bubble collapsed. When money was flowing into technology, new companies gobbled up people and office space in anticipation of future growth. When the Nasdaq tanked, the whole process went into reverse. People got fired and office space went back on the market. The heavier the concentration of technology, the worse the news. Hudson-Wilson calls the Cambridge office market ''a bloodbath'' and Interstate 495 ''ugly.''
In the meantime, the housing market keeps rolling along. The typical home in the Boston area now sells for $350,000, up about 5 percent in the past year and 100 percent in the past six years. Brokers say there has been some slowdown in activity at the high-priced end of the market, but they see no evidence that buyers generally are scared off by the prices. The fact that Massachusetts lost about 60,000 jobs last year - many of them at the same technology companies that are giving up office space - doesn't appear to matter to homebuyers.
''Consumers are looking at this slowdown as just a bump in the road,'' said Fred Breimyer, chief economist at State Street Corp. in Boston.
Economists are baffled by the split-personality economy. They have never seen anything quite like it. They assume that at some point the business side and the consumer side have to converge. The question: How will they come together?
Will the weak business environment drag down consumers? Or will the strength on the consumer side convince businesses that it is time to start spending money again? Or will the two sides meet in the middle, as consumers slow down a bit and businesses pick up the pace?
Most analysts go with choice three. Me? Put me down in the Alan Greenspan camp. Testifying before Congress last week, the Fed chairman was asked about the future path of the recovery. Replied Greenspan: ''Who knows?''
Could Boston housing possibly continue to maintain it's current strength?
No! <NG> |
