Nonagricultural wage and salary employment peaked in the Boston metropolitan area in December 2000 at 2,098,900 workers. This was a 3.2-percent increase over the level of employment in December 1999 and above the average annual rate of 2.5 percent since 1991. Employment in 2001 increased by 5,600 jobs, or 0.3 percent, from 2000. Job growth slowed in the first quarter, with employment down 17,400, or 0.8 percent, in the 12 months ending March 2002 compared with the previous 12-month period. Construction employment increased by 4,600 jobs, offsetting in part manufacturing’s loss of 8,400 jobs, which was well above manufacturing’s average annual employment decline of 3,300 since 1991. Major construction projects in the Boston area, primarily the Big Dig and associated bridge, tunnel, and highway infrastructure projects, are still supporting the local economy. Losses in serviceproducing industries were concentrated primarily in trade and business services, with small gains in government and finance, insurance, and real estate. Although the unemployment rate has been gradually increasing from a low of 1.8 percent in December 2000 to 4.2 percent in March 2002, the Boston area’s unemployment rate is still well below the national average of 5.7 percent for March. Massachusetts recently began paying extended unemployment benefits to those who exhausted their original eligibility.

The metropolitan Boston office market is now characterized by higher vacancy rates, lower lease rates, and concessions. The downtown vacancy rate, which was only approximately 5 percent a year ago, is currently in the low teens according to local sources. Rents have dropped 25 to 40 percent during the past year and a half. Recently rents in downtown Boston approached $100 per square foot; that space now sells for $60 to $70 per square foot. Concessions being offered to lure new tenants include build-out allowances, reduced security deposits, and free rent. The lease-up rate of office space in the late 1990s was too aggressive; firms committed to more space than was ultimately needed in the softening economy. This excess space, combined with the effects of the dot.com bust, has resulted in a considerable amount of space offered for sublease. Most sources indicate that it will take several years for the office market to return to equilibrium.

For the first quarter of 2002, residential building activity in the Boston area, as measured by building permits, was down approximately 7 percent from the same period in 2001. The decline was due almost entirely to a 22-percent reduction in multifamily units permitted. This reduction reversed the trend of increasing multifamily construction, which went from 1,000 units in 1993 to more than 3,100 units in 2001. Single-family construction has been on a generally downward trend, falling from approximately 6,200 units in 1998 to only approximately 4,600 units by 2001.

The eastern Massachusetts sales market has been very strong over the past several years. However, the number of existing sales has been decreasing almost 5 percent annually from the recent peak year sales of 29,100 homes in 1998. This decrease was caused by the limited inventory available for sale, as the growing economy and favorable mortgage rates spurred demand and boosted prices. The Boston market has supported double-digit price increases since the mid-1990s, posting a median sales price for an existing home in 2001 of $356,600. Condominium sales in the greater Boston area increased through much of the 1990s, peaking at 10,200 units in 1999. Total existing sales for 2000 and 2001 were down less than 3 percent from that peak level.

Despite the slowdown in the local economy, Boston’s rental housing market remained strong in the first quarter of 2002. The market is beginning to show some signs of relief from the limited inventory and rent pressures of recent years. Vacancy rates, which were under 3 percent for the past 2 years, have begun to increase; rent concessions are more widespread; and rents are flattening. Much of the loosening has come at the high end of the rental market, while the moderate and middle segments remain tight.