Call it the Great Migration: The year that was! Boston had an additional 800,000 square feet of office space go vacant while the suburbs filled almost 1 and ¼ million square feet of previously vacant office space.
Although this can be attributed to a myriad of factors, the most obvious is money. Massachusetts employers saved approximately $20,000,000 by migrating to the suburbs.
Suburban Office Space throughout Greater Boston has an average rent of $18/square feet versus Boston’s average rent of $32/square feet. The exception to this is Cambridge which has an average office rent of $35/square feet but has property taxes 30% less than that of Boston. Whereas Boston businesses vacated 800,000 square feet during 2010, Cambridge Businesses leased an additional 580,000 square feet! The outer suburbs filled an additional 670,000 square feet of office space.
Overall, Boston’s vacancy rose to 9%, while the Greater Boston Suburbs averaged an 11% vacancy rate. Again, the exception was Cambridge with an office vacancy rate of 8.7% and, surprisingly, Worcester with a vacancy rate of only 8%.
Vacancy Rates by Class
There are optimists as well as pessimists and both have divergent views as to what will transpire over the next few years. The optimists espouse that the recovery is in process and will continue. As such, they expect Boston’s office vacancy rate to drop and good times will be here again. They expect that the prestige and benefit of a Boston address to outweigh the additional expenses. For firms that work nationally and internationally, there is little doubt as to the benefits associated having an address in a world class city.
Asking Rent by Class
The pessimists support the notion that even if the recovery continues; businesses have learned to cut costs out of necessity and won’t soon forget the painful lessons learned. For those businesses that need the benefit of a prestigious address, Cambridge provides the same, but with significantly lower costs via property tax pass though. For firms that work principally within Massachusetts and New England, the prestige isn’t worth paying double the rent and will continue migrating to the suburbs.
Property Taxes per $1000
In the next 3 years, almost 40% of office leases in Boston will expire. This constitutes nearly 40,000,000 square feet of space. If only half of those businesses opt for the lower overhead provided by the suburbs, the effects on Boston would be devastating.
This begs the question; will the benefits of working in a world class city continue being a magnet to both international and national firms? Or will businesses continue the migration away from the expensive office spaces provided by downtown Boston rendering Boston the next Detroit? The stakes are high and it’s anyone’s guess.