Chase Bourdelaise, Transwestern
In what was the most dynamic quarter since the dot-com boom in 2000, tenants in Greater Boston absorbed 2 million square feet of office space in the second quarter of 2015. The activity was driven by a number of high-profile construction completions throughout both the urban and suburban areas of the market.
The Boston CBD experienced its ninth straight strong quarter with 861,000 square feet absorbed. Notably the activity occurred mostly outside of the boundaries of the “Big 3” Boston submarkets of Back Bay, Seaport District and Financial District (though the latter did absorb 290,000 square feet in its own right). North Station saw a major bump in occupancy with the completion of Converse’s 230,000-square-foot headquarters, causing the submarket’s largest quarterly absorption number on record. Move-ins by Sonos and Safari Books Online added 200,000 square feet of absorption in Midtown, where vacancy has dropped to nearly half of what it was a year ago after State Street’s departure. And development continues at Boston Landing, where the 245,000-square-foot second phase is currently under construction and is already partially pre-leased to the Boston Bruins.
Space continues to be scarce in Cambridge, where vacancy is just 5.8 percent and availability is at an all-time low (5.9 percent). In fact, just three options greater than 20,000 square feet remain — all in East Cambridge, where average Class A asking rents have now passed $70 per square foot. This tightening has led to more off-market transactions and discussions of additional construction, but major deals are still happening, as evidenced by Alnylam Pharmaceuticals’ 295,000-square-foot lease at 675 West Kendall Street, where it will move its headquarters in 2018. Genzyme also announced it would be vacating its iconic Kendall Square facility in 2018 to move to a new 251,000-square-foot building on Binney Street.
In the suburbs, the process and benefits of construction activity may be even more pronounced. Route 128, long a scene of traffic cones and tow trucks, is transforming before our eyes, starting in the south where many of the retail components of University Station in Westwood are coming online. North of that, TripAdvisor moved into its new 281,000-square-foot headquarters building in Needham, while Clarks Americas leased 120,000 square feet in Waltham to become the anchor tenant at 1265 Main Street.
But activity in the suburbs hasn’t just been limited to Route 128. Class A rents are the highest they’ve been in seven years along I-495, with absorption being strong and steady across all three submarkets there throughout the past year. Market-wide, demand is as strong as it has ever been, and with another 4.5 million square feet of office space in the pipeline, sustained activity will likely continue in the coming periods.
The combination of the robust Boston real estate market and historically low interest rates has influenced a variety of investors to push billions of dollars toward producing the millions of square feet of office, residential, retail and other space that can be seen changing the skyline. The array of office towers recently completed and under construction along with a number of future construction dates and proposed buildings confirm the city’s need for more office space. There is currently $6.9 billion invested in 66 underway construction projects totaling 14.6 million square feet. Of these, the most notable is the luxury high-rise apartment building, The Millennium Tower, which will stand at close to 700 feet upon completion. However, this high-rise does not cap the changing skyline. There are four other proposed buildings that will exceed 600 feet in height, including 111 Federal Street — which would be the third tallest building in Boston at 740 feet. Along with these five proposals, there are an additional 10 buildings proposed which will stand between 250 and 470 feet in height. In fact, 2016 is projected to be the busiest year in construction completions in more than a century, with 7.9 million square feet of rentable building area to be delivered.
— Chase Bourdelaise, Northeast Director of Research for Transwestern. This article originally appeared in the October 2015 issue of Northeast Real Estate Business magazine.