By Greg Ryan
The downtown Boston office market has captured the lion’s share of local attention — and alarm — since Covid-19 upended the five-day, in-office workweek. But now there’s cause for concern across the Charles River for the 12 million square feet of offices in Cambridge.
A CBRE report this month found that, for the first time since the havoc that started in 2020, Cambridge’s office vacancy rate, at 18.6%, has surpassed downtown Boston’s, at 17.7%.
Other brokerages, using slightly different metrics, still rate Cambridge as faring a bit better than Boston — but just barely. Colliers researchers recently wrote that office availability in Cambridge “is positioned to blow past the previous record-high level established during the dot-com bust.”
There’s a reason that early-2000s implosion is the low-water mark: Cambridge office landlords have long relied heavily on the tech sector for tenants. Now that industry is adopting hybrid and remote work more than perhaps any other — reducing the need for office space.
It’s also been hit hard by a slowdown in venture capital funding and high levels of layoffs.
Since 2020, Cambridge has lost some big tech leases to Boston, including InterSystems Corp. and CarGurus Inc. At the same time, HubSpot Inc. and Twitter Inc. have closed offices in Cambridge as layoffs have continued. Others have put office space up for sublease, including Akamai Technologies and Biogen Inc.
New leases are rare, and when they are signed, small.
At 26.3%, the availability rate of office space in East Cambridge is four times higher now than it was in 2019, according to Avison Young data.
Tucker White, the U.S. life sciences lead for Avison Young’s research team, said that fact “blows (his) mind, since it is considered one of the most innovative square miles in the world.”
New towers, no tenants
A brand-new office tower, 40 Thorndike, is hitting the market without any announced tenants.
Leggat McCall Properties and Granite Properties redeveloped the former Edward J. Sullivan Courthouse near the Lechmere MBTA station into a 20-story mixed-use tower with 420,000 square feet of office space. The project, expected to be complete in September, “may be the first major office project in the Boston area to deliver vacant,” according to Colliers.
The office struggles carry big implications for landlords and the city itself.
Cambridge is helped by its position as a global life sciences hub. Lab vacancies are also rising, but not to the same level as offices. Kendall Square, home to some of the country’s most valuable life sciences real estate, remains a magnet for the sector’s largest companies. To some degree, that protects Cambridge’s city budget from the challenges faced by office-heavy Boston, where Mayor Michelle Wu is seeking to rejigger the tax system because of a feared decline in the city’s commercial property values.
Cambridge City Councilor Paul Toner said that while city officials are being cautious, there’s a belief they can weather the turmoil in commercial real estate through careful budgeting.
“So many people want to be near Harvard and MIT. We feel we’re in a bit of a better spot than most,” Toner said.
But landlords are feeling the pain. Office rents in Cambridge are still among the highest in the region, but they’ve fallen quite a bit: The average asking rate was $76.67 per square foot in the second quarter, down from over $85 per square foot in early 2022, according to CBRE.
Office sales, conversions
Office buildings in Cambridge have not seen the same level of sale activity as they have in Boston over the past year. Property owners could consider an office-to-lab conversion, a well-trod path in the city. Even in East Cambridge, however, there are already millions of square feet of lab space available for rent, making such a change a potentially riskier bet than it was a few years ago. A conversion geared toward “tough tech,” including robotics or climatetech, is also a possibility, though those generally draw lower rents than a life sciences lab.
Then there are office-to-residential conversions, which are often a financial and architectural challenge. Boston has been more aggressive than Cambridge in encouraging the conversions, offering developers a 29-year tax break.
Patience could pay off for those who stick with an office use, said Avison Young’s White. With the uncertainty caused by a presidential election soon over, and multiple interest rate cuts potentially in the offing, tech companies could soon start growing again, he said.
His colleague, Avison Young market intelligence analyst Declan Hood, noted that just a few big office leases would quickly turn Cambridge’s office market around.
“If the lab market comes back as well later in ’25, that’s going to help all the industries that complement the life sciences there,” White said.