RBJ: Reason For Optimism In 495 North Rental Market
The 495 North submarket, which has struggled with office vacancy and offered lease rates well below those found in neighboring regions, showed signs of improvement in the third quarter of 2013, according to Boston commercial real estate advisory firm Richards Barry Joyce & Partners (RBJ).
RBJ said vacancy declined a full percentage point from the second quarter, and the average asking lease price reached its highest level since 2009.
The results were reflected in RBJ’s Fall 2013 OfficeStatUS report, which provides a snapshot on the commercial real estate market in all markets it serves, including Boston and its suburbs, as well as cities and towns in MetroWest and along the Interstate 495 corridor.
‘Legacy’ Companies Drive Downsizing in 495 North
The 495 North submarket, which includes the MetroWest towns of Acton, Ayer, Boxborough, Chelmsford, Devens, Littleton and Westford, became a hub for the technology industry beginning in the 1970s, said Brendan Carroll, senior vice president at RBJ. And that has led to a maturation of the commercial office landscape today.
Carroll said technology companies with roots in the region, like IBM in Littleton and Alcatel-Lucent in Chelmsford, which he referred to as “legacy” firms, have downsized their footprints in the region, driving up vacancies and driving down lease prices.
But with vacancy declining to 22.9 percent in the third quarter, from 23.9 percent in the second quarter and 23.1 percent a year ago, there’s reason to believe younger companies are beginning to drive up demand in the region. Tenants occupied 11.5 million square feet of office space in the third quarter, up 163,000 square feet from the previous quarter. It’s the first time in five quarters the 495 North submarket has seen positive absorption, according to Carroll.
“This is a submarket which has…obviously had its ups and downs but 163,000 of square feet in this most recent quarter is a good sign, Carroll said.
Whether vacancies will continue to decline at the same rate in the fourth quarter is not clear, but Carroll said there’s reason to believe it may. And if it does continue to decline by about 1 percent each quarter, the reduction in vacancy will become quite meaningful, he said.
Room For ‘Solid Organic Growth’
“It appears that groups that were going to consolidate in the 495 market have largely done so,” Carroll said, adding that “good, solid organic growth could pick up in the near future.”
The 495 North submarket still offers a high value to younger companies in search of affordable leases, but prices are beginning to head north, according to the RBJ Fall report. In the third quarter, the average asking lease price was $18.88 per square foot, an annual increase of 2.4 percent and the highest since 2009. But that was still well below the average prices found in Boston, Cambridge and their suburbs.
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