December 23, 2002
Firms’ Year-End Figures Show Cambridge on the Right Road
Bankers & Tradesman

It might not be time to strike up the band just yet, but year-end figures from two commercial real estate service firms suggest the Cambridge market may finally be on the road to stability, including one report from Richards Barry Joyce & Partners indicating a nearly 4 percent drop in availability rates for the year. The amount of space available for lease in that 17.3 million-square-foot market now stands at 16.8 percent, according to RBJ&P, substantially below the 20.5 percent mark posted at the beginning of the year.

“There is a bona fide tightening of the Cambridge market,” RBJ&P President Robert B. Richards told Banker & Tradesman last week. “A reduction that big is major,” Richards added. “It hasn’t happened in four years.”

Meanwhile, CB Richard Ellis/Whittier Partners is reporting positive absorption of 164,000 square feet in Cambridge for the year, well below the negative 1.46 million square feet recorded in 2001. At the same time, CB/Whittier also estimates that the asking rent has dropped from $37.44 per square foot a year ago to $32.04 at year-end 2002.

Richards agreed that rental rates have continued to plummet in Cambridge, but said he is nonetheless enthused by the drop in availability. A key reason, he said, is that companies are finding the opportunities to lease space in Cambridge, whereas they previously might have been forced to look outside the market. “Cambridge is back to being an affordable market,” said Richards, especially with so-called “plug-and-play space” that has become a function of the current environment. “You can be in Cambridge with furniture and phones in the low $20s [per square foot],” said Richards. “Why go far afield when you have all the talent and amenities right here?”

RBJ&P Director of Research Katie Kelly said the bulk of the momentum in Cambridge can be found in the sublease market, partly because some firms have already written off the leased space they no longer need and are aggressively pricing it to find a taker. Direct deals have lagged somewhat, she said, because landlords are not as willing to cut rates.

‘Nearing the Bottom’
One landlord that has fared well this year is Cabot, Cabot & Forbes, with its 55 Cambridge Parkway building. According to RBJ&P, the former Lotus building has gone from having more than 160,000 square feet available on a direct basis to less than 38,000 square feet at present. The vacancy rate in East Cambridge is now at 16.3 percent, down from 21.3 percent at the start of the year.

Other brokers familiar with Cambridge say they are encouraged by the recent pace of leasing. Insignia/ESG principal Gregory Lucas said he believes there are still some holes in the market, but added there are some bright aspects as well.

“We are, in my opinion, nearing the bottom,” Lucas said. “We’re not there yet, but we are pretty close to it.” The major occurrence of the year was the commitment of Novartis to two properties in Cambridge, Lucas said, including a 500,000-square-foot deal at the Necco Candy Factory building on Massachusetts Avenue.