Hub office rents continue free fall
businesstoday.com
by Scott Van Voorhis
Tuesday, June 25, 2002
The Hub's already battered commercial real estate may be in for another hard hit, with new market projections pointing to a continued decline in once sky-high office rents.
While the national and regional economy is slowly on the mend, Boston developers can expect a further 3 percent drop in rents through 2004, according to a new study by local real estate researcher Raymond Torto.
In fact, instead of leading the way out of the real estate slump, Boston is expected to lead the country when it comes to declining office rents, reports Boston-based Torto Wheaton Research.
With a projected office rent decline of 3.1 percent, Boston's projected fall is the nation's deepest, with Denver's expected 1.8 percent drop a distant second.
News of the continued decline in office rents comes as local office tower owners try to absorb the shock of already steep rental rate plunges over the past 18 months.
Rents in the towers of Boston's Financial District have plunged 10 percent to 15 percent so far this year, and may drop another 5 percent or more during the remainder of 2002, said Ted Wheatley, senior vice president and head of the Boston area for The Staubach Co., the Dallas-based commercial real estate company.
And while the projected drops are not huge, they come at a time when local developers and office tower owners are hoping to see the first signs of a rebound in the commercial real estate market.
``These rates are near 1998 levels,'' Wheatley said. ``We have slipped four to five years.''
Space in Boston's top towers, which rented, on average, for $66 a square foot in late 2000, is now down in the $48-a-square-foot range, Wheatley said. By year's end, office rents in Boston's top towers could be down to $45 a square foot - roughly the 1998 level.
Meanwhile, the vacancy rate in downtown Boston has soared from the single digits in the late 1990s to well past 12 percent. And in the city's suburbs, cutbacks by major high-tech companies have resulted in a vacancy rate of roughly 25 percent along Route 128 and Interstate 495.
Nationally, things don't look much better.
Office vacancy rates, having hit 12 percent by the end of 2001, will rise for the next year, eventually reaching 17 percent, Torto Wheaton predicts.
And rents, after falling about 10 percent in 2001, will decline about 3 percent this year.
``Corporate America is looking very rigorously at real estate as a factor of production, just like labor and, like labor, it's largely laying it off as it doesn't need it,'' Torto told Bloomberg News.
After Boston and Denver, Chicago, Atlanta and St. Louis are expected to see the next biggest office rent drops, at 1.6 percent, 0.7 percent and 0.4 percent, respectively.
New York, by contrast, is expected to see rents increase by about 4 percent during the same time period, according to Torto Wheaton. |
