Boston Office Market Continues Its Run of Positive Returns

Greater Boston’s office market is continuing a very strong streak, closing 2016 and the fourth quarter on a good note. The year saw 1.4 million square feet positively absorbed with 789,000 square feet absorbed in the fourth quarter. The current vacancy rate is 12.7 percent, slightly lower than the market average over the last five years of 13.6 percent. Average Class A asking rents are $43.12 per square foot, which has appreciated 9.1 percent in the last three years.

Chase Bourdelaise, Transwestern

Chase Bourdelaise, Transwestern

Neither the quarter nor the year are aberrations. The market is on an extended run of positive returns. Office space in the Greater Boston market has now seen positive absorption in 14 of the last 15 quarters, accumulating 12 million square feet positively absorbed over that period.

The Boston CBD contributed 59,000 square feet of positive absorption in the fourth quarter, decreasing the vacancy rate 0.1 percentage points to 9.6 percent. The most absorption of the CBD submarkets occurred in the Financial District, which saw 69,000 square feet positively absorbed. Average Class A asking rents are currently $55.09 per square foot in the CBD, led by Back Bay, which has an average asking rate of $62.51 per square foot.

Across the Charles River in Cambridge, the vacancy rate rose 0.9 percentage points to 3.8 percent on 104,000 square feet of negative absorption. The bulk of the negative absorption occurred in Mid-Cambridge, which experienced 98,000 square feet of negative absorption. Average Class A asking rents across the Cambridge market rose to a price of $65.62 per square foot, led by East Cambridge with an average asking rate of $76.93 per square foot.

Stretching into the suburban markets, Route 128 collectively saw 433,000 sf absorbed this quarter, dropping the vacancy rate 0.5 percentage points to 12.9 percent. Route 128 North led the Route 128 belt in absorption, snapping a three-quarter negative streak, with 331,000 square feet positively absorbed. The average Class A asking rate for Route 128 is $30.60 per square foot, with Route 128 West achieving the highest rates within the 128 belt of $38.80 per square foot. On the outskirts of the market, the Interstate 495 submarkets saw 115,000 square feet of positive absorption, dropping vacancy 0.7 percentage points to 21.7 percent. Class A asking rents saw little change, with an average asking price of $21.43 per square foot.

Looking further into 2017, the commercial office market is expected to remain a top destination for investors. There are 2.2 million square feet expected to deliver in 2017 and a number of high-profile moves are on the horizon. It will be important to keep an eye on the Federal Reserve in 2017; as the economy and stock market strengthen, the speed at which the Fed may increase interest rates has become a topic of speculation. It will be difficult for the market to maintain this streak for as long as it has gone on. But in the near term, it shows no sign of slowing down. 

— By Chase Bourdelaise, Northeast Research Director, Transwestern. This article first appeared in the January/February 2017 issue of Northeast Real Estate Business.

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