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Financial District at the heart of a solid year
BOSTON, Jan. 3, 2013 — Fourth quarter 2012 data for the Greater Boston markets released by Jones Lang LaSalle reveal that Boston ended the year on a good note. The Greater Boston market registered 6.6 percent rent growth year-over-year, and a positive 1.4 million square feet in direct net absorption.
At the heart of the strong absorption is the robust recovery exhibited in the Financial District. Jones Lang LaSalle’s new Expanded Boston Skyline Review indicates that the Financial District is benefitting from spillover demand from the Back Bay and Seaport Districts. As market pricing in the high rise portions of premier towers continues to rise, the low-rise subset is at the cusp of this dynamic.
The Financial District registered a vacancy rate of 11.9% at year end – a level unseen since early 2010 and an improvement of over four percentage points over the year. What had previously plagued the Financial District was its large blocks of available space in the low rise segment of the buildings but the spillover demand from the Back Bay and Seaport District has helped fill the void. Leases by Ebay, Partners Healthcare, Iron Mountain, Homesite, to name a few, have all done their part in helping to shape the Financial District recovery story.
The Seaport District recorded another strong year with direct asking rents reaching $37.87, up $8.00 in a single year and eclipsing the Financial District Class B rents for the first time. The Back Bay closed the year with a vacancy rate up 200 basis points over the year in large part due to 185 Dartmouth which was repositioned and put back on the market in the 3rd quarter and is vacant. Still overall, the vacancy rate remains at extremely tight levels at 6.1 percent and asking rents grew a staggering 19.2 percent over the year.
In the suburbs, the bright spot remains the 128/Mass Pike market where class A rents have reached $32, and where rents for the prime assets in the market are even higher, and currently equivalent to Seaport District class B rents in the high 30’s.
Cambridge actually saw rents decline but this happens in a very tight market when the more expensive space gets absorbed. It is not a sign of weakening fundamentals, but more a sigh of dwindling top tier options.
Overall, as a backdrop to improving fundamentals appears to be reasonably strong job growth to-date. Employment data for the year, available through November, suggests that the Boston NECTA added over 38,000 jobs in 2012, exceeding 2011’s tepid growth of 11,000 jobs. The Greater Boston total employment numbers are now only 10,000 jobs shy of the previous peak – making its pace of recovery one of the best in the nation. In addition, it appears that long-time lagging sectors like financial, legal, and accounting services are showing signs of recovery. In fact, the financial services sector added 4,500 jobs this year (a first since 2007). Legal services and accounting also appear to be turning the corner. Growth in these sectors couldn’t happen at a better time. Healthcare, a sector that grew at a pace of 3.0 percent year-over-year through the recession, has slowed to growing at a 1.0 percent pace year-over-year.
High-tech (computer systems design) and life sciences (scientific research and development) continue to be bright spots. While their pace of growth has slowed as well, they continue to be significant drivers in our recovery, growing at 10.0 percent and 5.0 percent year-over-year, respectively.
The risks to Boston’s recovery are the same that plague the rest of the nation at this point although Boston could be disproportionally hit if defense or healthcare spending cuts are severe. Boston has the benefit of being in a strong position as it faces possible headwinds that stem from Washington or the rest of the world in 2013.About Jones Lang LaSalle Jones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.
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