ABG Commercial Realty  |  (617) 492 9900

View Saved Properties  |   Sign Up

Boston Area Office Market Report for Q2 2019

Overview

Boston's office market continues to show strong performance in 2019. Vacancies have taken a sharp fall from the already low levels of 2018 and now stand at their lowest point in over two decades. Little new inventory is expected to arrive over the next several quarters, meaning if macroeconomic trends stay as is, the market will likely tighten further.

Rapidly expanding tech and biotech firms dominate leasing like never before. Wayfair and WeWork continue to headline recent expansions in the CBD and now are among the largest lessees across the metro. East Cambridge/Kendall Square, the center for the technology in Boston, remains essentially full, to the benefit of surrounding submarkets. The Seaport has already poached several Cambridge firms this cycle and may be setting itself up to attract more following big land investments by Alexandria Real Estate Equities and Related. Suburban leasing on the whole remains strong, though benefits haven’t been spread equally. The suburban submarkets to the west of the CBD, notably Waltham and Watertown, continue to experience positive impacts from migration within the suburbs and from departing Cambridge firms. However, several submarkets to Boston’s south have seen big availability spikes from large space givebacks from companies like State Street and Reebok.

While rent growth is down from early cycle highs, gains continue at a consistent pace in response to tight vacancies. Modern, 4 & 5 Star office buildings have performed significantly better than their 3 Star counterparts, almost regardless of location. The contrast is particularly pronounced in the suburbs, where outdated office parks have languished and amenitized, “urbanlike” buildings have outperformed. While fundamentals remain solid, threats loom. Boston is a tech-heavy economy and rent declines during recessions are typically sharper than in other markets.

On the supply side, deliveries for the next several quarters are expected to be minimal, aiding the near-term vacancy forecast. However, a supply threat looms in 2021 and beyond. More space is currently underway in Boston than at any time since 2001, meaning the market’s supply peak has likely yet to hit the metro.While much of the space underway is already committed, risks may come from backfill space when the economicoutlook may be murkier than it is today.

Deep-pocketed investors, particularly pension funds and international investors, continue to drive pricing up to new heights. While recent annualized sales volume has been well below levels of the market’s 2014 peak, investors are still finding opportunities. The second quarter of 2019 closed as the highest quarter for deal volume in almost four years. The Seaport has seen and outsized amount of investment over the past year, as have lab buildings, which have been targeted almost regardless of their location. Cap rates remain low and have witnessed little movement over the past few years, despite the trend of rising interest rates

Information provided by CoStar.com

This website uses cookies to improve your experience. By clicking accept and continuing on this site, you consent to our use of cookies. Read more in our privacy policy.