BOSTON (Oct. 27, 2009)—In a positive sign that the Greater Boston office market may be nearing a recovery phase, the volume of new sublease office space remained low during the last two consecutive quarters, the Boston office of Lincoln Property Company announced today in its third-quarter report.
After dumping 1.04 million square feet of sublease office space on the market in the first quarter of this year, the Greater Boston office market, which includes the Cambridge, Route 128 and Interstate 495 submarkets, added only 229,148 square feet of net sublease office space during the second quarter, according to the report. During the third quarter, in fact, the net sublease space declined by 19,751 square feet.
“Even with a decline in the third quarter, the total supply of office sublease space remains 5.36 million square feet in the 156 million-square-foot Greater Boston market that our study covered,” said Scott Faber, Director of Research at Lincoln Property Company. “Nevertheless, the good news is that we have started to see a decline in new sublease space coming on the market. With unemployment still on the rise across the country, the trend may be a fluke, but the sublease market does appear to be dwindling down.”
“From a leasing perspective, the volume of sublease space remains prevalent throughout the Greater Boston office market and continues to influence rental rates,” said Michael S. Edward, Senior Vice President and Head of Brokerage at Lincoln Property Company. “However, the decline in Q3 is a positive note as we enter the fourth quarter of 2009.”
During the third quarter of 2008, the market added 1.83 million square feet of sublease office space, a whopping 110 percent increase from the second quarter of 2008, representing the largest quarterly increase during the current recession.
Here is a summary of quarterly office sublease space available in Greater Boston:
Period Total Office SF Change % Change
Q1 2008 1,946,967 (268,213) -12.1%
Q2 2008 1,660,612 (286,355) -14.7%
Q3 2008 3,485,781 1,825,169 109.9%
Q4 2008 4,106,509 620,728 17.8%
Q1 2009 5,149,020 1,042,511 25.4%
Q2 2009 5,378,168 229,148 4.3%
Q3 2009 5,358,417 (19,751) -0.4%
The total office vacancy rate, including the sublease space in Greater Boston, rose to 13.2 percent at the end of the third quarter, up from 9.8 percent at the end of the third quarter in 2008, according to the report. The market reported a negative net absorption of 4.2 million square feet during the first three quarters of this year as compared with a positive absorption of 1.2 million square feet during same period of last year.
Lincoln Property Company tracks about 156 million square feet of Class A and Class B office space throughout Greater Boston.
“Though an increase in overall available space during the third quarter is disconcerting, the fact that it is direct space and not discounted sublease space should be viewed favorably,” said Scott Faber, Lincoln Property Company. “The market is expected to remain relatively flat for the next few quarters with an expected positive turnaround by late 2010.”