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Boston Area Office Market Report for Q4 2017

The Boston Office market ended the fourth quarter 2017 with a vacancy rate of 7.9%. The vacancy rate was up over the previous quarter, with net absorption totaling negative (176,350) square feet in the fourth quarter. Vacant sublease space decreased in the quarter, ending the quarter at 2,330,944 square feet. Rental rates ended the fourth quarter at $22.65, an increase over the previous quarter. A total of four buildings delivered to the market in the quarter totaling 597,740 square feet, with 4,520,033 square feet still under construction at the end of the quarter.

Absorption

Net absorption for the overall Boston office market was negative (176,350) square feet in the fourth quarter 2017. That compares to positive 183,540 square feet in the third quarter 2017, positive 1,076,242 square feet in the second quarter 2017, and positive 1,543,952 square feet in the first quarter 2017. The Class-A office market recorded net absorption of positive 276,757 square feet in the fourth quarter 2017, compared to positive 226,200 square feet in the third quarter 2017, positive 788,926 in the second quarter 2017, and positive 474,140 in the first quarter 2017. The Class-B office market recorded net absorption of negative (400,907) square feet in the fourth quarter 2017, compared to positive 105,128 square feet in the third quarter 2017, positive 96,993 in the second quarter 2017, and positive 1,040,491 in the first quarter 2017. The Class-C office market recorded net absorption of negative (52,200) square feet in the fourth quarter 2017 compared to negative (147,788) square feet in the third quarter 2017, positive 190,323 in the second quarter 2017, and positive 29,321 in the first quarter 2017. Net absorption for Boston’s central business district was positive 24,887 square feet in the fourth quarter 2017. That compares to positive 60,946 square feet in the third quarter 2017, negative (30,030) in the second quarter 2017, and negative (381,932) in the first quarter 2017. Net absorption for the suburban markets was negative (201,237) square feet in the fourth quarter 2017. That compares to positive 122,594 square feet in third quarter 2017, positive 1,106,272 in the second quarter 2017, and positive 1,925,884 in the first quarter 2017.

Vacancy

The office vacancy rate in the Boston market area increased to 7.9% at the end of the fourth quarter 2017. The vacancy rate was 7.7% at the end of the third quarter 2017, 7.6% at the end of the second quarter 2017, and 7.7% at the end of the first quarter 2017. Class-A projects reported a vacancy rate of 9.5% at the end of the fourth quarter 2017, 9.4% at the end of the third quarter 2017, 9.2% at the end of the second quarter 2017, and 9.4% at the end of the first quarter 2017. Class-B projects reported a vacancy rate of 8.6% at the end of the fourth quarter 2017, 8.4% at the end of the third quarter 2017, 8.4% at the end of the second quarter 2017, and 8.3% at the end of the first quarter 2017. Class-C projects reported a vacancy rate of 3.7% at the end of the fourth quarter 2017, 3.6% at the end of third quarter 2017, 3.5% at the end of the second quarter 2017, and 3.7% at the end of the first quarter 2017. The overall vacancy rate in Boston’s central business district at the end of the fourth quarter 2017 remained at 7.0%. The vacancy rate was 7.0% at the end of the third quarter 2017, 7.1% at the end of the second quarter 2017, and 7.0% at the end of the first quarter 2017. The vacancy rate in the suburban markets increased to 8.2% in the fourth quarter 2017. The vacancy rate was 7.9% at the end of the third quarter 2017, 7.8% at the end of the second quarter 2017, and 7.9% at the end of the first quarter 2017.

Rental Rates

The average quoted asking rental rate for available office space, all classes, was $22.65 per square foot per year at the end of the fourth quarter 2017 in the Boston market area. This represented a 0.6% increase in quoted rental rates from the end of the third quarter 2017, when rents were reported at $22.51 per square foot. The average quoted rate within the Class-A sector was $29.37 at the end of the fourth quarter 2017, while Class-B rates stood at $20.08, and Class-C rates at $18.82. At the end of the third quarter 2017, Class-A rates were $29.88 per square foot, Class-B rates were $20.12, and Class-C rates were $18.28. The average quoted asking rental rate in Boston’s CBD was $47.87 at the end of the fourth quarter 2017, and $21.80 in the suburban markets. In the third quarter 2017, quoted rates were $46.84 in the CBD and $21.76 in the suburbs.

Deliveries and Construction

During the fourth quarter 2017, four buildings totaling 597,740 square feet were completed in the Boston market area. This compares to six buildings totaling 669,592 square feet that were completed in the third quarter 2017, six buildings totaling 727,564 square feet completed in the second quarter 2017, and 1,121,285 square feet in eight buildings completed in the first quarter 2017. There were 4,520,033 square feet of office space under construction at the end of the fourth quarter 2017. Some of the notable 2017 deliveries include: 123 Foley St., an 850,000-square-foot facility that delivered in first quarter 2017 and is now 100% occupied, and 50-60 Binney St, a 505,000-square-foot building that delivered in second quarter 2017 and is now 99% occupied. The largest projects underway at the end of fourth quarter 2017 were 40 Thorndike St, a 445,000-square-foot building with 100% of its space pre-leased, and 100 Binney St, a 431,500-square-foot facility that is 100% pre-leased.

Sales Activity

Tallying office building sales of 15,000 square feet or larger, Boston office sales figures fell during the third quarter 2017 in terms of dollar volume compared to the second quarter of 2017. In the third quarter, 36 office transactions closed with a total volume of $963,546,275. The 36 buildings totaled 3,652,207 square feet and the average price per square foot equated to $263.83 per square foot. That compares to 37 transactions totaling $2,733,063,805 in the second quarter 2017. The total square footage in the second quarter was 6,460,907 square feet for an average price per square foot of $423.02. Total office building sales activity in 2017 was up compared to 2016. In the first nine months of 2017, the market saw 108 office sales transactions with a total volume of $5,902,071,515. The price per square foot averaged $391.14. In the same first nine months of 2016, the market posted 130 transactions with a total volume of $3,608,833,386. The price per square foot averaged $326.81. Cap rates have been higher in 2017, averaging 6.57% compared to the same period in 2016 when they averaged 6.29%. One of the largest transactions that has occurred within the last four quarters in the Boston market is the sale of One Federal Street in Boston. This 1,120,577-square-foot office building sold for $705,000,000, or $629.14 per square foot. The property sold on 4/28/2017.

Information provided by CoStar.com

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