According to Costar, the Route 3 Corridor consists of approximately 801 Office Buildings offering just over 9,500,000 square feet of space. Vacancy as of July 1, 2013 is approximately 845,000 square feet or 9%. Single digit vacancy is very good considering other suburban office markets have vacancy rates in the 20%+ range. One would think that 9% vacancy is indicative of a strong leasing market, better than average demand and lots of activity. While this is generally true there are still signs that the office leasing market is sluggish.
If we dig deeper into the stats we see that leasing year to date is 144,000 square feet but the net absorption for the year is only 86,880 square feet. This means that while some of the vacancy is being gobbled up there are companies that are consolidating into smaller space, moving out of the Route 3 Corridor or shutting down altogether. Also, the average time space sits on the market is 23 months.
At Atlantic Properties we work with a wide variety of office tenants in all size ranges throughout Southeastern Massachusetts. In our experience we find that tenants still don’t have a sense of urgency with respect to relocating or renewing their lease. The primary reason for this is that their current landlord is not pressuring them to make a decision. Landlords don’t want to risk losing a tenant just to find themselves with prolonged vacancy.
At the end of the day the positive leasing and absorption statistics are good news for landlords. It does not appear that we are going to experience the same type of leasing activity we saw in 2003 – 2007 when tenants were often forced to make decisions quickly or risk losing their desired space but we may begin to see lease rates begin to creep upwards.