Boston’s office market is experiencing a significant downturn in demand as of early 2024, largely due to a slowdown in the life sciences industry and shrinking footprints of organizations in technology, finance, and professional services. This downturn coincides with a substantial wave of new office supply entering the market. Office attendance remains low, with public transit ridership struggling to reach 70% of pre-pandemic levels.

Many companies are reducing their space requirements as leases signed before 2020 expire. Over the past year, occupiers have returned 4.6 million square feet of office space, with more expected to be given back. The sublet market has also seen an unprecedented amount of space, pushing the availability rate to an all-time high of 17.5%.

Since early 2022, approximately 12 million square feet of new office space, nearly half for lab use, has come online. Another 15 million square feet is expected by the end of 2025, contributing to rising vacancy rates and declining effective rents over the next two years. Currently, Boston’s vacancy rate is 12.8%, still below the national average of 13.9%, but the gap is narrowing.

The combination of market imbalance and uncertain demand, coupled with a rapid rise in interest rates, has severely impacted Boston’s capital markets. Transaction volume in 2023 was the lowest since 2010, with property values down around 20% on average since the end of 2021 and cap rates rising over 100 basis points.

As the rate-hiking cycle nears its end and more loans mature, liquidity is expected to return to the market. This return may lead to distress and a repricing similar to the 30% decline seen after the Great Recession.