Source:
Torto Wheaton Research
Last data point: Q3 2008
These two charts illustrate trends in the New England’s office space market—an important indicator of the health of corporate America. The Torto Wheaton Rent Index is an estimate of average contracted rental price of office space in a metro area’s downtown market. The office vacancy rate measures the fraction of commercial real estate zoned for office space that is currently vacant and available for sale or lease. Typically, these data series move in opposite directions. When vacancy rates rise due to slowing demand or excess supply, downward pressure is exerted on the rent index.
As the charts reveal, during the economic boom of the late 1990s and early 2000s, the demand for office space skyrocketed, causing rents to rise to record levels and vacancy rates to plummet. The 2001 recession prompted a drop in a historically-high rent index and a sharp spike in the office vacancy rate in New England markets, as layoffs and company downsizing translated into less need for office space. Further, the long lag time between a building’s conception and its completion meant that buildings were planned during the economic boom became available after peak demand. Still, the rental price of office space in Boston remained high relative to the nation through the early 2000s. The office rental market was also growing prior to the 2008 recession: office rents in Boston increased and were on par with those for the nation while vacancy rates declined lower than experienced for the nation.