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Boston Area Office Market Report for Q4 2016

The Boston Office market ended the fourth quarter 2016 with a vacancy rate of 8.1%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 641,967 square feet in the fourth quarter. Vacant sublease space increased in the quarter, ending the quarter at 2,541,118 square feet. Rental rates ended the fourth quarter at $21.02, a decrease over the previous quarter. A total of three buildings delivered to the market in the quarter totaling 87,623 square feet, with 4,784,156 square feet still under construction at the end of the quarter.

Absorption

Net absorption for the overall Boston office market was positive 641,967 square feet in the fourth quarter 2016. That compares to positive 2,487,797 square feet in the third quarter 2016, positive 566,112 square feet in the second quarter 2016, and positive 748,849 square feet in the first quarter 2016.

The Class-A office market recorded net absorption of positive 745,639 square feet in the fourth quarter 2016, compared to positive 1,526,219 square feet in the third quarter 2016, negative (178,947) in the second quarter 2016, and positive 302,331 in the first quarter 2016.

The Class-B office market recorded net absorption of negative (73,474) square feet in the fourth quarter 2016, compared to positive 633,888 square feet in the third quarter 2016, positive 337,739 in the second quarter 2016, and positive 528,338 in the first quarter 2016.

The Class-C office market recorded net absorption of negative (30,198) square feet in the fourth quarter 2016 compared to positive 327,690 square feet in the third quarter 2016, positive 407,320 in the second quarter 2016, and negative (81,820) in the first quarter 2016.

Vacancy

The office vacancy rate in the Boston market area decreased to 8.1% at the end of the fourth quarter 2016. The vacancy rate was 8.2% at the end of the third quarter 2016, 8.5% at the end of the second quarter 2016, and 8.6% at the end of the first quarter 2016.

Class-A projects reported a vacancy rate of 9.4% at the end of the fourth quarter 2016, 9.9% at the end of the third quarter 2016, 9.9% at the end of the second quarter 2016, and 9.8% at the end of the first quarter 2016.

Class-B projects reported a vacancy rate of 9.0% at the end of the fourth quarter 2016, 8.9% at the end of the third quarter 2016, 9.3% at the end of the second quarter 2016, and 9.5% at the end of the first quarter 2016.

Class-C projects reported a vacancy rate of 3.9% at the end of the fourth quarter 2016, 3.9% at the end of third quarter 2016, 4.3% at the end of the second quarter 2016, and 4.8% at the end of the first quarter 2016.

The overall vacancy rate in Boston’s central business district at the end of the fourth quarter 2016 decreased to 7.4%. The vacancy rate was 7.5% at the end of the third quarter 2016, 7.9% at the end of the second quarter 2016, and 7.7% at the end of the first quarter 2016. The vacancy rate in the suburban markets decreased to 8.2% in the fourth quarter 2016. The vacancy rate was 8.4% at the end of the third quarter 2016, 8.6% at the end of the second quarter 2016, and 8.8% at the end of the first quarter 2016.

Rental Rates

The average quoted asking rental rate for available office space, all classes, was $21.02 per square foot per year at the end of the fourth quarter 2016 in the Boston market area. This represented a 0.3% decrease in quoted rental rates from the end of the third quarter 2016, when rents were reported at $21.09 per square foot. The average quoted rate within the Class-A sector was $25.88 at the end of the fourth quarter 2016, while Class-B rates stood at $20.14, and Class-C rates at $17.83. At the end of the third quarter 2016, Class-A rates were $27.27 per square foot, Class-B rates were $19.80, and Class-C rates were $17.73. The average quoted asking rental rate in Boston’s CBD was $47.91 at the end of the fourth quarter 2016, and $20.26 in the suburban markets. In the third quarter 2016, quoted rates were $53.16 in the CBD and $20.18 in the suburbs..

Deliveries and Construction

During the fourth quarter 2016, three buildings totaling 87,623 square feet were completed in the Boston market area. This compares to nine buildings totaling 1,704,901 square feet that were completed in the third quarter 2016, three buildings totaling 93,279 square feet completed in the second quarter 2016, and 1,282,431 square feet in 14 buildings completed in the first quarter 2016.

There were 4,784,156 square feet of office space under construction at the end of the fourth quarter 2016. Some of the notable 2016 deliveries include: 100 Northern Ave, a 514,738-square-foot facility that delivered in first quarter 2016 and is now 73% occupied, and 170 Everett Ave, a 474,907- square-foot building that delivered in third quarter 2016 and is now 100% occupied.

Sales Activity

Tallying office building sales of 15,000 square feet or larger, Boston office sales figures fell during the third quarter 2016 in terms of dollar volume compared to the second quarter of 2016. In the third quarter, 41 office transactions closed with a total volume of $1,160,217,453. The 41 buildings totaled 3,318,185 square feet and the average price per square foot equated to $349.65 per square foot. That compares to 47 transactions totaling $1,416,194,493 in the second quarter 2016. The total square footage in the second quarter was 4,225,364 square feet for an average price per square foot of $335.17. Total office building sales activity in 2016 was down compared to 2015. In the first nine months of 2016, the market saw 129 office sales transactions with a total volume of $3,603,727,876. The price per square foot averaged $324.75.

In the same first nine months of 2015, the market posted 105 transactions with a total volume of $3,820,857,142. The price per square foot averaged $306.72. Cap rates have been higher in 2016, averaging 6.29% compared to the same period in 2015 when they averaged 6.27%. One of the largest transactions that has occurred within the last four quarters in the Boston market is the sale of 101 Seaport in Boston. This 439,058-square-foot office building sold for $452,000,000, or $1,029.48 per square foot. The property sold on 4/11/2016, at a 4.25% cap rate.

Information provided by CoStar.com

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