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Greater Boston Commercial Market Remains Robust

While other U.S. cities have demonstrated volatile economic markets, Boston has sustained a strong, healthy economy for more than 40 years. This economic health coupled with the city’s diversity of industries has had a lasting, positive impact and increased demand for commercial space in the greater Boston market.

The snapshot of the Class A and B, lab and office market is strong but shows some signs of regression. Today, overall vacancy for lab and office including sublet space is 12.8 percent, according to research from Colliers International. When you break down the numbers by region, the current downtown Boston office market has 71 million square feet, with a 9.2 percent vacancy rate. Cambridge has 23.6 million square feet of space and 3.8 percent vacancy and the suburbs total 123.5 million square feet with 16.6 percent vacancy. 

Bob Cleary, SIOR,CRE, Colliers International

The entire Boston area absorption for lab and office space is 5.2 million square feet. While those stats are favorable compared to the last two years, (2017 with 1.8 million square feet and 2016 with 1 million square feet), they are dwarfed by 2015 which had absorption of 5.8 million square feet. It is also the first time that Class B rents have topped $50 per-square-foot in aggregate. Class A office rents are at record highs of $63 per-square-foot. 

With only a few large blocks of office space left and a very fluid leasing market, availability is a challenge.  Approximately 2 million square feet of office space was absorbed in 2018. 

Notable downtown Boston leases include Wayfair Inc. (395,000 square feet), Amazon (430,000 square feet), Oath Inc. (440,000 square feet) and Putnam Investments, which completed its HQ relocation for nearly 250,000 square feet at 100 Federal Street. 

Rob Nahigian, FRICS,SIOR, CRE,MCR, Auburndale Realty Co. 

A prominent market trend has been company migration into Boston and Cambridge to attract and retain young talent. This employee demand has benefitted the Seaport area, as rents climb towards $100 per-square-foot in East Cambridge and Back Bay. The lowest Boston submarket vacancy is Charlestown at 3.2 percent and the highest is the Seaport at 12.6 percent. 

Other impactful trends include the co-working craze, consolidation and operational efficiency, and insatiable lab demand. WeWork, a prominent co-working space, constantly looks to lease blocks of 100,000 to 200,000 square feet at a time, as they become one of the largest landlords in Boston. International corporate catering firm ezCater recently leased 100,000 square feet from WeWork at 40 Congress Street.  

Cost Concerns

There has been a steady 35-40 percent increase in asking rents over the past five years. Downtown Boston rents have increased by more than $30 per-square-foot during that same period while suburban office rents for Class A properties have increased by $12-15 per-square-foot during. 

As five-year leases expire, accelerated rental costs are unavoidable. 

Cambridge

East Cambridge has the lowest vacancy (1.2 percent) with rents exceeding $100 per-square-foot while West Cambridge/Alewife Station has the highest vacancy (20 percent). Tech Drive has experienced nearly a 70 percent rent inflation. 

Five years ago rents were $51 per-square-foot triple net and today rents are $85 per-square-foot, triple net. With vacancy so low, new leasing is limited and highly competitive. Sanofi committed 900,000 square feet for 2,700 employees at Cambridge Crossings. Phillips committed 337,000 square feet from DivcoWest in East Cambridge. Approximately 90 percent of leasing has been on speculative or renovated properties. 

Due to low availability, “space banking” — when a company leases more space than necessary and sublets or warehouses the space until needed — has become popular. 

Inner Suburbs

The Inner Suburbs with 6.7 million square feet of inventory and a low vacancy, (11.2 percent) have become a very attractive value alternative for lab and office space, especially for artificial intelligence (AI) and companies supporting AI, robotics, and academia. 

The need for space has spread to the inner suburbs in areas such as Watertown, Allston, Somerville and Fenway. Watertown is currently experiencing a development explosion with the 1 million square foot renovation/redevelopment of Arsenal Mall into retail, residential and office space, among other projects. 

The Watertown market is converting many of its older industrial stock into lab space as a relief valve to the low vacancy and high priced Cambridge market. In addition, hospitals and area universities are competing for commercial and campus space. Hebrew College is new to this market and seeking 40-60,000 square feet as it recently monetized its Newton campus. 

Suburban Market

There is currently 123.5 million square feet of total inventory in the suburban market. The highest vacancy is Route 495 North (21.1 percent). Trends show a reverse migration from Cambridge to the suburbs to find suitable space and save significantly on rent. 

There is an abundance of tenant activity, flight to quality and tenant amenities. The suburbs are a true value alternative market. Some company owners are tired of the Boston commute, and demographics show that younger married employees are shifting to suburban housing. 

For example, Burlington, MA has attracted Boston-based service companies at a more affordable rent. The Waltham-Wellesley corridor offers quality and location at discount pricing to Boston, such as Liberty Mutual, SunLife and Wellesley Office Park. But, hospitals and medical providers continue to push into the traditional suburban office scene creating higher demand. These activities pressure rental rate increases and lack of inventory. 

Industrial Market

It has been a dynamic year for the industrial market, with the advent of e-commerce highlighted by Wayfair and Amazon.JC Cannistraro opened its Seaport manufacturing facility, a former abandoned military WWII facility, planning for hundreds of new jobs. It is one of the larger industrial deals in Boston proper in recent years. 

The overall industrial market has 148.5 million square feet of inventory and a shrinking vacancy of 9.9 percent. The Route 128 North market is the tightest market with 6.6 percent vacancy. 

The Route 128 South market and urban markets carry a higher vacancy of 13.8 percent. The NECCO building vacancy solely accounts for most of the urban market vacancy. 

Speculative industrial development and limited first class industrial space has created an increase in rental rates to $8.99 per square feet, all net. Additionally, there are quiet space needs including 150,000 square feet on the South Shore and 300,000 to 500,000 square feet in the Northwest suburban market. 

Those space-needs create more stress on an already limited industrial market. 

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