2009 was a challenging year for the Greater Portland office market.  Overall vacancy increased by nearly two points to 10.39%, ending the year in double digits for the first time since 1996.  Furthermore, sub-lease vacancy increased three-fold to 120,000 sf, with an additional 150,000 sf of shadow space possible for 2010.  On a brighter note, sales were active relative to recent years, and leasing transactions were equal to 2008 albeit for shorter terms, less square feet and lower rents.  Small but promising signs of a step forward in this recessionary cycle.

·               Downtown overall vacancy remained level with 2008, ending the year at 8.82%.  The results differed by class with Class A posting a 3% increase and Class B down 2.2%.  The sale of 110 Free St. to Maine Health somewhat skewed results, removing 85,000 sf of Class B vacancy from the survey.  Absent that sale, downtown overall vacancy would have increased by nearly 2% for a year-end total of 10.8%.

·               Suburban overall vacancy increased sharply in 2009, up 3.5% from 2008 to 11.74%.  This represents the highest suburban vacancy rate since the start of our survey in 1993, and only the second time since then to rise above double digits.  Both Class A & B sectors contributed to the increase, up 5% and 2% respectively from the prior year.

·               The Greater Portland office market expanded 63,000 sf in 2009, solely due to the conversion of 71 US Route One, Scarborough from industrial to office use, 15,000 sf of which is committed to a medical user.  This represents roughly one-third of the markets 10-yr average annual growth of 195,000 sf.  This market now stands at 9.77 million rentable square feet.

·               Net absorption was negative in 2009 by 51,959sf or 0.53%, the first time with noticeable negative absorption since 1995.  The downtown market posted positive absorption of 40,000 sf with the 110 Free Street sale, offset by 92,000 sf of negative absorption in the suburban market due to multiple new vacancies.  The national average for 2009 is expected to be negative by 1.6%.

·               In aggregate, asking rentals rates increased 2.75% for the year, with only the Suburban Class A sector posting a reduction resulting from multiple new vacancies there.  Nationally, asking rental rates are expected to decline by 12.1% in 2009 and further by 8.5% in 2010. 

·               The national office market vacancy rate is anticipated to end 2009 at 17%, up 2.5% over 2008, with a further increase to 18.3% projected for year-end 2010.  Vacancy in the Greater Boston office market ended 2009 at 18.5%, while the local office market vacancy rate was 10.39%.

The fallout of the national economic crisis is now fully impacting commercial real estate markets, with increased unemployment and the lack of available credit at the heart of the issue.  Looking ahead we anticipate overall vacancy to increase locally by another 1% to 2% in 2010, with a corresponding posting of negative absorption and a slight reduction in asking rental rates.  However, we further predict that 2010 will be the peak of the storm, with a more favorable trend thereafter.