The Greater Boston office market remained sluggish in the first half of 2009 as the economy continued to slide.Leasing activity declined as many tenants were reluctant to make real estate decisions in an uncertain economic climate. The impact of layoffs resulted in the unemployment rate reaching 8.6% by midyear. Net absorption was negative in most submarkets as more space became available, and the supply of sublease space increased.
The vacancy rate for class A&B office space in the Downtown Boston market increased to 9.2% in the first half of the year, compared to 7.4% at the end of 2008. Average asking rents decreased to the $37.93 per square foot, down from $41.50 at the end of last year. Meanwhile, net absorption for the first half of the year posted a negative 999,300 sq. ft.
The suburban market didn’t fare much better with vacancy increasing to 12.4%, compared to 11.2% at the end of 2008, with average asking rents decreasing to $21.50 per sq. ft. In addition, the Suburban office market posted 905,800 sq. ft. of negative net absorption for the first 6 months of 2009.
With a dearth of tenants in the market, landlords have continued to lower their rent expectations. In addition, landlords have become increasingly competitive by offering tenants free rent, more tenant improvement dollars, flexible lease terms, and guaranteed expansion options. Given the economic outlook, it appears tenants will be in a favorable position for the remainder of 2009.