JLL: Shadow Space Dogs Boston

February 2, 2010
By Allison Landa, News Editor

The Greater Boston area will emerge from recession early this year but the commercial real estate market is expected to lag behind the city’s overall recovery in large part due to vacancy, according to Jones Lang LaSalle’s Boston Office Insight report for the fourth quarter 2009.

The report, which surveyed supply, demand, and pricing, predicts the slow recovery based on several different factors, the first of which is rising vacancy as tenants continue to consolidate into smaller spaces as leases expire.

“Significant shadow space existing in the market will delay a recovery in fundamentals even after employment growth resumes,” the report reads. Shadow space is vacant space not currently on the market.

In 2009, nearly all Boston submarkets experienced an increase in vacancy – some as much as 25 percent. As a result, landlords were forced to offer incentives in order to keep tenants in their buildings – and the report says that this is not going to change any time soon. Tenant improvement allowances and free rent will be used to lure tenants, it asserts, with landlords who are financially solvent in relation to the competition best suited to handle market conditions.

This isn’t the first time the specter of shadow space has hung over Boston. In 2002, Boston real estate firm Spaulding & Slye Colliers found that 75 percent of respondents considered 10 percent or more of their space to be underused.

Moreover, Boston is far from the only city grappling with shadow space. JLL’s January Global Market Perspective forecast a very gradual national recovery for CRE, with shadow space not being absorbed for one to two years.

“Things are starting to stabilize, the bottom is upon us, but the road to recovery is going to be a long one, especially on the office side because we have so much space to absorb before they’ll take new space.”