As a seasoned professional in the commercial real estate industry, I am often asked about current market conditions and what I foresee for the future. After many years of practice in this industry, I can say unequivocally that the commercial real estate industry is directly tied to the state of the economy. In recessionary times, vacancies will rise and lease rates will fall as unemployment increases and demand for space falls. During times of economic growth, the converse is true. At the end of a weak quarter of production, invariably the GDP and other economic barometers will confirm that the economy had experienced weakness.
There is a direct correlation between employment and vacancy rates. Employment is a barometer of economic strength and weakness as vacancy rates are an indicator of the status of the commercial real estate market. Invariably, increasing unemployment will result in a increase of vacancy rates as companies shed space when reducing head count. Interestingly, 60,900 jobs were created in Massachusetts in 2014. This is the largest amount of job creation since the dot-com boom year of 2000.
Vacancy rates for the Boston Office market further reveal the correlation between the health of the economy and status of the commercial real estate market. The vacancy rate for the Boston office market ended the fourth quarter of 2014 at 9.2%. The vacancy rate was down over the previous quarter with net absorption totaling positive 814,670 sf in the 4th quarter.• This is a dramatic amount of space to be leased in one quarter. Given the current state of the economy, historically low interest rate environment, no inflationary pressure and continued job growth, we see increasing improvement in the fundamentals of the commercial real estate market.
Please contact my office to further discuss how my firm can assist you with your real estate objectives and navigating through a turbulent economy.
President, Boston Commercial Properties