Vancancy Rates in Cambridge/Boston Improving

Vancancy Rates in Cambridge/Boston Improving

Since the second quarter of 2011, Vacancy rates in Cambridge have been improving. Cambridge’s vacancy rate peaked that quarter at 10.3% and has been steadily declining since. The figures are in for the second quarter of 2012 and vacancy rates have dropped to 9.4% with a total of 10,137,858 square feet vacant in the Cambridge area. Although these figures are high, they are a step in the right direction for Cambridge. However, vacancy rates are not always an accurate predictor of economic recovery for a city.

Historically, office occupancy rates have a positive correlation with office sales and leasing activity, but in this economic recovery there’s a twist. After companies have been able to keep their heads above water and generate profits, they are either looking at smaller spaces that are a higher quality, or at smaller spaces to cut overhead costs. (http://blog.commercialsource.com/when-high-vacancy-rates-persist-even-as-the-economy-recovers/)

Jim Garringer’s statement is very applicable to this past recession. In the fourth quarter of 2008, vacancy rates were at 7.1%. Economic turmoil since 2008 has pushed many companies to downsize, relocate, and in extreme cases, shut down. For those companies that survived the turmoil, smaller spaces and lower overhead costs were necessary to stay above water. However, although the economy seems to be on the mend companies that have already adjusted are not about to turn back. That may very well be the case for Cambridge.

The City of Boston faces identical vacancy figures as Cambridge this quarter.

On another note, real estate developers are betting on a fast economic recovery for the area. In Cambridge, 6 new building are under construction totaling a 924,366 square feet of available lease space to enter the market next year. In Boston, 8 new buildings with 2,218,030 square feet of available lease space.

Rental rates have been on the decline since the fourth quarter of 2008 when they peaked at approximately $30 per square foot per year. Today, those rates are approximately $27.50.

Although the figures are some what discouraging, it is important to consider that rental rates and vacancy rates are not perfectly correlated with employment figures. As Garringer stated, in times of economic downturn companies innovate to reduce costs and once those innovations have been instituted there is very little incentive to turn back. In the coming years as confidence in the economy strengthens so will vacancy rates in and around Boston.

 

Contact: dfayngor@abgrealty.net

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