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Boston Area Office Market Report for Q1 2017

The Boston Office market ended the first quarter 2017 with a vacancy rate of 8.0%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 1,114,738 square feet in the first quarter. Vacant sublease space decreased in the quarter, ending the quarter at 2,440,670 square feet. Rental rates ended the first quarter at $21.45, an increase over the previous quarter. A total of six buildings delivered to the market in the quarter totaling 1,175,027 square feet, with 4,155,500 square feet still under construction at the end of the quarter.

Absorption

Net absorption for the overall Boston office market was positive 1,114,738 square feet in the first quarter 2017. That compares to positive 443,908 square feet in the fourth quarter 2016, positive 2,562,105 square feet in the third quarter 2016, and positive 578,577 square feet in the second quarter 2016.
The Class-A office market recorded net absorption of positive 474,861 square feet in the first quarter 2017, compared to positive 758,859 square feet in the fourth quarter 2016, positive 1,528,998 in the third quarter 2016, and negative (194,560) in the second quarter 2016.

The Class-B office market recorded net absorption of positive 630,319 square feet in the first quarter 2017, compared to negative (230,976) square feet in the fourth quarter 2016, positive 661,711 in the third quarter 2016, and positive 332,897 in the second quarter 2016.

The Class-C office market recorded net absorption of positive 9,558 square feet in the first quarter 2017 compared to negative (83,975) square feet in the fourth quarter 2016, positive 371,396 in the third quarter 2016, and positive 440,240 in the second quarter 2016.

Net absorption for Boston’s central business district was negative (417,454) square feet in the first quarter 2017. That compares to positive 39,998 square feet in the fourth quarter 2016, positive 823,445 in the third quarter 2016, and negative (170,432) in the second quarter 2016.

Net absorption for the suburban markets was positive 1,532,192 square feet in the first quarter 2017. That compares to positive 403,910 square feet in fourth quarter 2016, positive 1,738,660 in the third quarter 2016, and positive 749,009 in the second quarter 2016.

Vacancy

The office vacancy rate in the Boston market area decreased to 8.0% at the end of the first quarter 2017. The vacancy rate was 8.1% at the end of the fourth quarter 2016, 8.2% at the end of the third quarter 2016, and 8.5% at the end of the second quarter 2016.

Class-A projects reported a vacancy rate of 9.7% at the end of the first quarter 2017, 9.4% at the end of the fourth quarter 2016, 9.9% at the end of the third quarter 2016, and 9.9% at the end of the second quarter 2016.

Class-B projects reported a vacancy rate of 8.6% at the end of the first quarter 2017, 9.1% at the end of the fourth quarter 2016, 8.9% at the end of the third quarter 2016, and 9.3% at the end of the second quarter 2016.

Class-C projects reported a vacancy rate of 3.9% at the end of the first quarter 2017, 4.0% at the end of fourth quarter 2016, 3.9% at the end of the third quarter 2016, and 4.3% at the end of the second quarter 2016.

The overall vacancy rate in Boston’s central business district at the end of the first quarter 2017 increased to 7.9%. The vacancy rate was 7.4% at the end of the fourth quarter 2016, 7.5% at the end of the third quarter 2016, and 8.0% at the end of the second quarter 2016. The vacancy rate in the suburban markets decreased to 8.0% in the first quarter 2017. The vacancy rate was 8.3% at the end of the fourth quarter 2016, 8.4% at the end of the third q

Rental Rates

The average quoted asking rental rate for available office space, all classes, was $21.45 per square foot per year at the end of the first quarter 2017 in the Boston market area. This represented a 1.9% increase in quoted rental rates from the end of the fourth quarter 2016, when rents were reported at $21.04 per square foot.

The average quoted rate within the Class-A sector was $26.45 at the end of the first quarter 2017, while Class-B rates stood at $20.55, and Class-C rates at $17.83. At the end of the fourth quarter 2016, Class-A rates were $25.77 per square foot, Class-B rates were $20.22, and Class-C rates were $17.83. The average quoted asking rental rate in Boston’s CBD was $46.02 at the end of the first quarter 2017, and $20.70 in the suburban markets. In the fourth quarter 2016, quo

Deliveries and Construction

During the first quarter 2017, six buildings totaling 1,175,027 square feet were completed in the Boston market area. This compares to three buildings totaling 87,623 square feet that were completed in the fourth quarter 2016, nine buildings totaling 1,704,901 square feet completed in the third quarter 2016, and 90,517 square feet in three buildings completed in the second quarter 2016.

There were 4,155,500 square feet of office space under construction at the end of the first quarter 2017. Some of the notable 2017 deliveries include: Partners HealthCare, an 850,000-square-foot facility that delivered in first quarter 2017 and is now 100% occupied, and 80 Guest St, a 265,000-squ

are-foot building that delivered in first quarter 2017. The largest projects underway at the end of first quarter 2017 were Alexandria Center at Kendall Square, a 505,000- square-foot building, and Alexandria Center at Kendall Square, a 431,500-square-foot facility.

Sales Activity

Tallying office building sales of 15,000 square feet or larger, Boston office sales figures fell during the fourth quarter 2016 in terms of dollar volume compared to the third quarter of 2016. In the fourth quarter, 40 office transactions closed with a total volume of $747,969,549. The 40 buildings totaled 4,033,789 square feet and the average price per square foot equated to $185.43 per square foot. That compares to 42 transactions totaling $1,161,212,453 in the third quarter 2016. The total square footage in the third quarter was 3,340,919 square feet for an average price per square foot of $347.57.

Total office building sales activity in 2016 was down compared to 2015. In the twelve months of 2016, the market saw 170 office sales transactions with a total volume of $4,356,802,935. The price per square foot averaged $289.10. In the same twelve months of 2015, the market posted 144 transactions with a total volume of $7,037,761,342. The price per square foot averaged $364.11.

Cap rates have been higher in 2016, averaging 6.57% compared to the same period in 2015 when they averaged 5.97%.

One of the largest transactions that has occurred within the last four quarters in the Boston market is the sale of 101 Seaport Blvd. in Boston. This 439,058-square-foot office building sold for $452,000,000, o

Information provided by CoStar.com

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