REIT capital drives a furious broker market

Only a few years ago, the Cleveland, Ohio-based Dietz Organization was a successful regional brokerage firm with a transaction volume of about $100 million per year.

Currently, the Dietz Organization has $200 million in transactions pending and is moving toward closing all within a two month period. So to say that today's real estate brokerage market is volatile would be an understatement.

"A volume twice what we used to handle in a year in just two months," marvels Paul Dietz, president of the firm. "It is just phenomenal."

Phenomenal is also the word being used to describe the economy in most markets. The creation of new companies and the expansion of existing ones are creating thousands of new jobs as well as more demand for office and industrial space.

"Downsizing is certainly over as a national policy," says Julien Studley, chairman of Julien J. Studley Inc., New York. "This extraordinary, dynamic economy is having a tremendous impact on occupancy in practically every market."

The new workers are creating demand for apartments and single-family homes, and retailers are hot on the track of this migration nationwide.

"The primary force behind the strong real estate market is the strength of the national economy," says Joseph Harbert, the COO for the Northeast Division of New York-based Insignia/ESG Inc. "Markets are as strong as we have seen them in 10 years."

Although a few markets are seeing significant speculative development, and several others appear on the verge of a construction boom, most markets still have a lack of new space, which is keeping markets tight with rents and property values rising and, in some cases, meeting or exceeding the levels of the late 1980s.

"The buildings that make it first to the market will probably do the best," says Peter Benke, executive vice president with Boston-based Hunneman Commercial Co., NAI.

While the comparisons of today's market to that of the late 1980s are many, there is at least one important difference which prevents most brokers from fearing another recession: The majority of the new construction that is taking place is user-driven.

"In the late 1980s capital was unrestrained," says Brett White, president of brokerage services with Los Angeles-based CB Commercial. "But today development is much more heavily weighted toward equity, rather than debt."

1997 has been seen as the watershed year for the rebound of the brokerage market, early indications are 1998 could top its predecessor. "Our transactional value level for the first two months of 1998 is already twice what it was during that same period in 1997," says Mike Zugsmith, chairman of Encino, Calif.-based Capital Commercial Real Estate, NAI.

Ka Cotter, a principal with The Staubach Co., Dallas, agrees, "I think we will have a better 1998 than 1997."

Of course with their already large volumes, national firms couldn't expect as dramatic an increase as a smaller regional firm like the Dietz Organization, but they have experienced tremendous growth just the same.

"From 1996 to 1997, gross revenues were up 20%," says Thomas Falus, president of Cushman & Wakefield Inc.'s New Yorkoperations. "And that gain is distributed equally across the country, although the West Coast has experienced the most dramatic recovery."

Southern California has begun to emerge with strong leasing and sales figures. "People are quickly discovering that the Southern California markets are recovering much sooner than anyone expected," says Robert K. Shibuya, executive managing director of California operations with Insignia/ESG.

REITs driving values Of course, the difference in the current investment sales market compared with a few years ago is the feeding frenzy by REITs. Not only have the appetites of REITs increased, but the sheer number of them has as well.

"The number of REITs has grown tenfold in the last few years," says Jeffrey Baker, senior director of capital financial services with New York-based Cushman & Wakefield, and he adds that REITs currently account for nearly 50% of the acquisition market.

In some cities the impact of REITs has been even greater. "In Chicago REITs accounted for 81% of the office property sales in 1997," reports Terry Mostrom, senior vice president with Grubb & Ellis.

In addition to more REITs in the marketplace, the public companies' ability to acquire capital at lower costs allows them to pay higher prices for properties - prices some consider exorbitant for existing market conditions.

"There is no question that real estate prices are being driven up by the REITs and creating some false values," says Jimmy Gunn, president of national property services with PM Realty Group, Houston. "I believe there is some cause for concern because it is becoming difficult to get a realistic yield on these investments."

In the meantime, the competition for properties is intense, and the market is as active as ever.

"The investment sales market is hotter than anyone can remember," says Scott Brandwein, senior managing director with Insignia/ESG in Chicago. "It is not unusual to have 10 to 20 bids on any property."

Patrick Robinson, a principal in the New York office of The Staubach Co., says if the investor/owner timing is right, large profits could be made quickly. For instance, he points to the 100 Wall Street Building, which was bought by an investor and sold only six months later at double the price. A similar deal involving the 810 Seventh Avenue Building in the city netted one investor more than a $20 million profit.

"While these are extreme examples of value increases, they plainly illustrate the REITs' competitiveness in the quest to acquire properties," adds Robinson.

"The investors who bought from 1992 to 1996 are looking brilliant," says Kevin Hayes, president of Staubach's West Region. "There is not a single property bought in that period that did not add value."

Great buys getting scarce While many such deals were possible earlier in the cycle, many markets have already been picked clean at this point. But with demand high and supply limited by a lack of new product, Class-B and Class-C properties have begun to interest some investors as renovation projects.

"In Southern California these properties can still be bought at 50% of replacement cost, but with the assumption that the investor will be spending money to renovate the properties to 'A' space," says Shibuya.

As property values have increased substantially on Class-A properties in many markets and with new product still in short supply, one interesting trend that has developed is the interest by REITs in developing.

"With rents above replacement costs in many markets, it makes sense for REITs," says Gunn. "They have found that the development yield is better than overpaying for acquisition properties."

But others feel that development will not fit in well with REIT objectives. "The REITs have to have a steady stream of income, and development slows the income stream due to construction costs," says Studley.

But the older properties still hold some interest for REITs as the demand for office continues to exceed the supply.

A strong motivation in this investment in 'B' space has been the strong move the class has made in both vacancy and rents.

"Because of the limited supply in Class-A, tenants are forced to go to the 'Bs,'" Mostrom says.

And Class-B rents are rising as well.

In New York, Midtown rental rates for Class-B space have reached the $30 per sq. ft. mark. "That is a barrier that hasn't been crossed in a while," says Bruce Mosler, executive director with Cushman & Wakefield.

Mostrom says rents in Chicago are moving up at a rate of 10% to 30% annually, depending on the submarket.

The Staubach Co.'s Hayes estimates that overall rents in Southern California, the last market to exit the recession, have risen by 50% over the past two years.

Atlanta and Dallas, the markets at the front of the recovery curve, expect to see some slowing in rent as new construction comes on line and raise vacancy numbers slightly.

"Atlanta's rents are increasing, but only modestly as compared to some of the spiked growth over the last few years," says Mitchell Brannen, president of Atlanta's Brannen Goddard Co., NAI.

"Rents are expected to level off, but not go down," adds Allison P. Wilson, senior research manager in Grubb & Ellis' Atlanta office.

In Dallas, the northern suburbs are seeing all of the new development and the rent increases, but so far downtown rents are stagnant, says Gunn.

"Anyone would be hard pressed to find a market in this country that is not now experiencing both rental rate growth and property value appreciation," says White.

Sellers' market impacts fees Although the amount of work for brokers is greater than ever, the trend of decreasing brokerage fees continues or, at best, is holding steady.

"Fees in general have held, but sellers are in the driver's seat when choosing brokers, and they are making them compete on price as well as quality," says Benke.

Increasingly, brokerage firms are finding that to best provide for the service needs of their clients, they must expand globally, just as their clients are doing.

"Our clients are expanding worldwide and, to serve them, we have formed international alliances," Cotter says.

Harbert points to his firm's recent purchase of the Richard Ellis Group in the United Kingdom as part of his firm's commitment to a more active presence in Europe. The firm also has begun a partnership with the Italian firm Cagisa in that country and is currently looking at opportunities in the Far East.

But Harbert predicts that only a handful of firms will be able to make the transition. "Only half a dozen firms have the financial wherewithal to compete globally," he says.

Of course more regional firms are attempting to expand their reach globally through the broker networks. And the emphasis by the networks on projecting an international image is obvious.

Last September, The New America Network became New America International to underscore the group's inroads into South America, Europe and the Pacific Rim, says Jeff Finn, president of the Hightstown, N.J.-based organization.

In addition, Oncor International has recently added offices in Istanbul and Kiev; Colliers USA is just the domestic division of that organization, which includes more than 200 offices in 43 countries; and Chain Links now has a presence in London with plans to expand into Germany, France, Italy and Spain this year.

Atlanta In Atlanta, brokers are looking around and wondering when the brakes will be applied to the development market, but so far the strength of the market and the race to be out of the ground in time to take advantage of it has construction cranes towering over the northern suburbs.

"There is currently 5.9 million sq. ft. of office and 8.2 million sq. ft. of industrial space under construction here," says Chris Riley, vice president with Atlanta-based Carter & Associates. "Demand has warranted new supply, but this year will tell if supply will overtake demand."

Grubb & Ellis' Wilson says the new development has greatly loosened the market, which was well in favor of the landlord two years ago. "Tenants now have a few more options and there is room to negotiate for expansion space," she says. "It is not totally a tenant's market yet, but it is well on its way."

Despite the worries about overbuilding, the market's numbers are still very healthy. Job creation remains strong. Morgan says the market has added 60,000 to 90,000 new jobs every year since the mid-1980s, and recently N.P.A. Data Services, Washington, D.C., reported that Atlanta would add another 1.3 million jobs by 2015.

Grubb & Ellis figures report absorption at 3.8 million sq. ft. in 1997, and Wilson quotes the market's annual average at 3 million sq. ft. in recent years.

And 1998 could do as well or better. "We expect the market to absorb another 3.5 million to 4 million sq. ft. this year," says Jim Shelton, a broker with Atlanta-based Ben Carter Associates.

Statistics from Richard Bowers & Co. report the vacancy rate at 9.1% at the end of 1997, up from a recent low of 7.9% for the third quarter of 1996.

Boston-based Torto Wheaton Research, a subsidiary of CB Commercial Real Estate Group Inc., Los Angeles, tracked overall vacancy at year's end as slightly higher at 9.8%.

After experiencing major increases in rents in recent years, 1998 is expected to see only small gains. "The rents are increasing, but only modestly as compared to some of the spiked growth over the last few years," says Mitchell Brannen, a co-founder and president of Atlanta-based Brannen Goddard Co.

Morgan says rates have moved from the high teens to the low- to mid-$20s for Class-A product, and just under $20 for Class-B space.

While rents are expected to level off and vacancy to rise slightly, many feel this is due to Atlanta's more mature position in the recovery cycle, not overbuilding. "Atlanta's market picked up sooner, absorbed its excess space sooner and is reaching market equilibrium sooner," points out John Fetz, president of southeast corporate services in the Atlanta office of The Staubach Co.

The Atlanta industrial market is very healthy and more stable than the office sector, reports Riley. Despite additions of large amounts of space to the local market, the vacancy level has only risen from 5.4% four years ago to about 7% today.

Investment sales may also slow due to the questions of overbuilding. "Talk that the Atlanta market is teetering is putting up a little red flag on the market," says Wilson. "But we expect market values to hold through 1998."

Chicago "In Chicago there is one block of office space greater than 200,000 sq. ft. and, once that is gone, the only option will be new development," says Phil Utigard, managing director of Mesirow Stein Real Estate.

As a result, there are at least 15 proposed new office developments in the CBD. "Three of them are very real," adds Utigard. "And they all are seeking a strong anchor before breaking ground."

Overall vacancy ranges from 12% to 14%, depending upon the source, while Class-A space is around 7.5%.

Dennis Hiffman, vice chairman of Chicago-based Hiffman Shaffer Associates, NAI, says 1 million sq. ft. of new development is expected in both the east-west corridor and the northern suburbs this year. In addition, five buildings should break ground in the northwest suburbs as well.

Jacques Ducharme, senior executive vice president with New York-based Julien J. Studley Inc., says the city's activity level is roughly the same; however, "the velocity is faster as tenants want the space sooner."

"We expect rents to go up dramatically over the next 12 to 24 months," says Brandwein. Part of this rent growth will be due to new owners pushing rent rates to meet the greater yield expectations resulting from higher building sale prices.

"Rents are going up in excess of 30% annually in some submarkets," adds Grubb & Ellis' Mostrom.

These rent increases have stirred REITs and other investors to scramble for investment property for several years, and now property values are at or above replacement costs in Chicago.

"REITs are after anything," says Utigard. "Class-A buildings are changing hands."

Efforts to lock up development sites in the market have also affected the value of raw land, which has risen 20% to 30% in two years, reports Hiffman.

The residential market is also booming, meeting the demand created by young people interested in living downtown. "Some new apartment construction is occurring on the fringes of downtown, and many obsolete Class-B and Class-C office properties are being converted to expensive condos for the more affluent crowd," Hiffman says.

He adds that this residential growth is also sparking retail development in the form of restaurants and grocery locations.

Dallas "For a long time no one knew what a construction crane looked like in Dallas," jokes Gunn of PM Realty Group.

But today the market is littered with them. The Dallas market has approximately 6 million sq. ft. of office space under development, with the North Dallas and Las Colinas markets the site of about two-thirds of that space, says Reid Caldwell, director of office leasing in the Dallas office of Insignia/ESG.

The space is expected to meet the demand spurred by the more than 100,000 new jobs that were created in the market in 1997, reports Phillip Montgomery, president of P.O'B. Montgomery and Co.

Even with the job growth, Caldwell says, the new space will have some impact on vacancies and rents. "It will push rent down a little, but just a little," he adds. "We absorb about 4.5 million sq. ft. of space each year, so 6 million sq. ft. is not adding too much for a market of 120 million sq. ft."

Insignia/ESG figures show current vacancy levels at 6.6% for Class-A suburban space and 12% for Class-B suburban. Downtown, the overall vacancy rate is 34% - 20% for Class-A and 46% for Class-B.

"The completion of $1.2 billion in improvements to the Central Expressway leading to the heart of the city will help greatly," says Richard T. Mullen, president of The Mullen Co., Dallas. "It will make getting into the city much faster from the northern suburbs of Richardson and Plano, and so locating a business downtown will be much more viable."

In addition, Mullens says the development of some residential projects downtown and on the fringes of the city will also spur more retail development in those area.

"Dallas has new construction in both office and retail," says Mickey Ashmore, president of United Commercial Realty in Dallas.

Elysia Holt, president of the Southwest Division for The Staubach Co., says the market's growth is due to a combination of internal growth of existing firms and the relocation of other firms to the city.

"Companies have realized that they have weathered the economic storm, and now they are re-hiring people and taking more space to house them," she says.

The job market is attracting more people to the area and, as a result, the residential market is also booming. "The apartment market is tight, just as elsewhere in the country, and 18,000 single-family homes were built in the market last year," says Steven A. Lieberman, president of Commercial Retail DFW, a retail brokerage in the city.

Lieberman says Dallas remained at the top of national retail sales charts in 1997 with a total of $62 billion. "That is a 6% increase over 1996, and the national average was just 3%," he says.

Net occupancy in the market rose 3% last year alone to 88.5%, "the highest point it has been since 1994," adds Lieberman.

Neighborhood and community shopping center development that is tracking the residential growth is the busiest retail sector, while power center development is flat, adds Lieberman.

Regional mall occupancy dropped from 95% to 91% last year. However, it can be explained by the closing of several JCPenney stores and uncertainty over the future of the Prestonwood Town Center mall.

New York "It was a banner year in New York in 1997," says Mosler. "The market saw 33 million sq. ft. leased and experienced 10 million sq. ft. of net absorption."

In the Midtown market alone, 17 million sq. ft. was leased in 1997, the most that submarket has seen in 10 years, says Insignia/ESG's Harbert. "More significantly, 70% of the leasing activity was in primary (Class-A and Class-B) space," he adds.

Indeed, such colossal numbers would have to affect all levels of the market. "The Class-B market is being pulled up, along with the downtown submarket," says Staubach's Robinson.

Availability in Midtown dropped four points last year to 9.1%, according to Insignia/ESG figures.

Boston-based Torto Wheaton Research, a subsidiary of Los Angeles-based CB Commercial Real Estate Group Inc. reports that New York's overall vacancy rate at year-end was 11.4%.

Great demand and a lack of new product keeps tightening the market. Growth in the financial services industry and an explosion of small high-tech firms and the entertainment industry helped create 50,000 new jobs in the city last year, reports Barry Gosin, CEO of locally based Newmark & Co. Real Estate.

The proliferation of smaller firms usually means good things for future absorption totals as these firms expand. "95% of the new tenants employ 20 or less," says Gosin.

"In the entire Midtown market, 68% of the tenants are under 50,000 sq. ft.," adds Harbert.

Rents have been spiking in the city, with the $50 per sq. ft. barrier cracked in some submarkets and a few even reaching the $60 per sq. ft. plateau, says Mosler.

"Investors are confident that rents will show dramatic spikes because new supply will not get to the market quickly," explains Jeff Baker, senior director of capital financial services at Cushman & Wakefield.

Harbert says virtually every property in the market is part of a competitive process. "It is an extremely strong sale market, with intense competition and escalating prices," he says.

Philadelphia The Philadelphia brokerage market is not experiencing the dynamic boost that many of the other large national markets are seeing; however, the market has seen positive gains.

The office market saw leasing activity of more than 1.75 million sq. ft. in 1997 (up 19% over 1996), and available space dipped under the 4 million sq. ft. mark for the first time since 1989, according to figures compiled by locally based Jackson-Cross Oncor International.

"Rental rates increased in all classes of space, approaching their highest levels ever, and absorption was positive," adds Gregory J. West, executive vice president with Jackson-Cross. However, these numbers could come to a halt if rent increases hit the large number of tenants up for renewal this year.

Year-end 1997 figures by Jackson-Cross reported availability at 9.3% in suburban Philadelphia and 11.5% in the CBD.

"The western suburbs are generally tight," says John Gaghan, executive vice president with Philadelphia-based Atlantic Commercial Realty. "But downtown has a lot of vacancy driven by sublet space."

Employment in Philadelphia has been below national levels since the early 1990s, and "nearly 80% of the [Class-A office] absorption has occurred outside the CBD," says Rebecca Ting, director of corporate services with Mertz Corp., NAI, Wilkes-Barre/Scranton, Pa.

The main reason for this could be the tax situation, which gives companies a strong incentive to locate in the suburbs.

"The city has a city wage tax and a business privilege tax and there is no question that is hurting business development in the city," says Gaghan.

Edward M. Paul, senior partner with The Edward M. Paul Co., Philadelphia, agrees. "The city is not business friendly."

One bright spot for downtown is the activity around the 440,000 sq. ft. Pennsylvania Convention Center, which opened a few years ago. "Attendance at the convention center has picked up, spurring hotel growth around it. Hyatt has proposed a new hotel, but eight other proposed hotel projects involve the conversion of Class-C buildings," says Robert Hess, principal with Seligsohn-Hess Co., Philadelphia.

Hess adds that retail is doing better with lower vacancy and higher rents - particularly in the convention center area, which has seen a 30% increase in restaurants in space near the facility.

Unlike office, the local industrial market has been boosted by company moves to the area. Kvaerner ASA took 560,000 sq. ft.; SPD Technologies moved from the suburbs to the city; and Singer Equipment and Davis Vision both opened new facilities."The industrial market is very tight," says Benjamin Jacobson, president of Philadelphia-based Benjamin Jacobson Associates Inc.

In the investment sale market, "REITs are buying space and are paying superior numbers for it," says Paul.

He adds that, in general, Class-A space has sold in the $58 to $124 per sq. ft. range. "It is a good buyer's market in 'B' and 'C' space," says Paul.

Southern California Whoever said it never rains in Southern California was certainly not in the real estate business in the early 1990s. But many of the region's brokers finally saw the sun break through the clouds in 1997, and the market is returning to its old self at a rapid pace.

Southern California was the last region into the recession and the last out. "But to steal a line from the movies, 'We're back,'" says Zugsmith.

"There is no recession in Los Angeles right now," adds Adrian Goldstein, managing director in the Los Angeles office of New York-based The Greenwich Group International.

But the prosperity is not just limited to Los Angeles. "The comeback is almost homogenous across Southern California," says Staubach's Hayes. "Rents are at or near replacement costs, and development has begun to make economic sense again."

CB Commercial Real Estate Group Inc.'s 1998 Southern California Real Estate Forecast cites many positives that are and should continue to drive the market. For instance, CB estimates, the region's population and office employment will increase by 4% and 5.6%, respectively by the year 2000. And overall office vacancy should drop to 11.1%, "its lowest level in almost two decades," states CB's forecast.

Currently, the region's office vacancy is at 14.7%, lower than it has been in more than 10 years and demand is on the rise, reports Los Angeles-based CB Commercial. Rents are expected to continue to move up to levels that support new construction. As a result office product completions are expected to rise dramatically to 900,000 sq. ft in 1998 and almost triple to 2.5 million sq. ft. in 1999.

Although some markets in the region are still soft, they all have improved and are continuing to do so.

Hayes says Los Angeles, Orange County and San Diego all have submarkets with vacancies currently at less than 5%, and rents have spiked up accordingly.

"Vacancy rates are in the single digits, and rental rates have increase 30% in a year," says Insignia/ESG's Shibuya.

Corporate relocations have also helped the market turnaround. Lincoln Mercury recently moved its corporate headquarters to Irvine from Michigan, which was one of the more high-profile relocations.

Hayes says rents have increased 50% over the last two years and even more in some markets and, more importantly, the spikes may not be over.

"It seems like rental rates in Los Angeles went from $24 to $34 overnight," says Goldstein.

But this early in the recovery, not all markets are booming. The Los Angeles Airport district is still depressed, and the San Fernando Valley area and downtown Los Angeles both still have vacancy rates above 20%, says Steven E. Marcussen, senior vice president with Los Angeles-based Cushman Realty.

"However," says Marcussen, "since downtown Los Angeles is the worst office market in the country, that makes it the best investment market in the country."

But sellers are earning good profits. "There has been a 50% to 100% increase in property values, and not a single property sold from 1992-96 that did not sell at a profit," says Hayes.

To the south, coastal Orange County is booming. Office rents have risen by 50% in the last two years, and Marcussen says it is still accelerating. Trammell Crow and Opus are among firms developing in the area, and a large number of build-to-suit projects are under way. CB Commercial Real Estate Group Inc. reports Orange County's population has grown 5.1% since 1993 and is expected to grow another 8.5% by 2002. Also, CB Commercial statistics indicate that in 1997 the market experienced its largest absorption totals (1.8 million sq. ft.) in seven years.

The Inland Empire is dominated by industrial, which is also doing very well with significant rent increases. Office space is still 20% vacant in the market, but Marcussen speculates it will fill up as the industrial market continues to expand.

In San Diego, the suburban office market is strongly fueled by new high-tech and bio-tech companies. CB Commercial reports that unemployment is at its lowest point since 1990 at 4.3%, after the addition of 25,000 jobs in 1997. The telecommunications industry employment has grown from 4,200 in 1992 to 20,000 in 1997, according to CB Commercial statistics.

But the largest demand may be from expanding existing firms. For example, Hayes says Qualcomm, the digital portable phone manufacturer, has been an expansion phenomenon, taking on average 30,000 sq. ft. a month for the past two years.

Washington, D.C. In the Washington, D.C., market, the big news is the boom in activity in the Northern Virginia submarket.

"That market is as hot as any suburban market in the country right now," says David Houck, vice president in the Washington office of The Staubach Co.

With an inventory of 100 million sq. ft. and a vacancy rate under 5%, down from a 14% rate in 1992, Northern Virginia's absorption totals "have been very impressive," says Petch Gibbons, president of Washington-based Insignia Barnes Morris.

"There was a lot of pent-up demand heretofore and no new development," explains Kurt Stout, client services manager in the Washington office of Grubb & Ellis.

Gibbons adds that rents are up significantly to levels in the upper $20s per sq. ft. range, which has spurred a great deal of new development.

"There is 5 million sq. ft. under construction right now, and potentially twice that amount could be delivered in Northern Virginia by the end of 1999," says Stout, adding that most of the development is in the cities of Reston and Herndon.

Jim Jones, managing director in the local office of Julien J. Studley Inc., doubts all those projects will be built but, he points out, "It is still a strong measure of the confidence in the market."

Larry Baucom, managing director with The Greenwich Group International, credits the great demand in the market to the concentration of high-tech firms in the area. "Northern Virginia is second only to the Silicon Valley in number of high-tech firms," he says.

Gibbons says the area's unique job base and strong rent increases the past two years have set it apart from the Washington CBD to the benefit of both. "Northern Virginia will continue to grow, but not at the expense of downtown as was the case five years ago," he explains. "The increased rents are discouraging another flight from downtown."

Washington's CBD has made great strides in the last year. Jones reports overall vacancy at 10.9%, with Class-A vacancy at 6.3%.

The CBD experienced just short of 1 million sq. ft. of absorption in 1997, according to Cushman & Wakefield numbers.

Rents have increased substantially and "concessions, in general, do not exist," relates Stout.

"There is a real shortage of space in large blocks, and that is creating demand for new office building projects," Baucom explains.

Class-A effective rent rates have increased at least 20%, and Class-B rents are starting to rise, according to Houck.

The strong demand is also driving investment values. Baucom reports that suburban property values are reaching $180 per sq. ft., or better, for well-leased and well-located space.

"Recent sales downtown have seen prices hovering in the $300 a ft. range, and trophy properties are likely to sell at prices well beyond that level in the future," Houck estimates.

Boston In Boston, strength in several key industries - financial services, banking, legal services and insurance - are driving office demand which, along with a lack of new construction, is leading to record low vacancy levels and near-record rent rates in both 'A' and 'B' space.

The troubles experienced by the city's computer and mutual fund industries earlier this decade have reversed themselves and those companies are once again driving demand, says Michael B. Sherman, president of Boston-based CB Commercial/Whittier Partners L.P.

"The comeback has been aided by the fact that many computer industry people remianed in the area and because of the storng educational base here," he adds.

"The diversified economic base is one of Boston's strengths," says Dick

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