When I called CBRE’s Research Director in New England to ask about events I could “zoom in” to gather data for a 2022 launch story, I was told that we would get the following market summaries:
• The office market in downtown Boston recovers in Q4
• The Cambridge office is ending 2021 better than it started
• Suburban offices are gaining momentum
• Boston industrial market rises to record highs…again
• Labor market ends 2021 with record high rents, record low vacancies
This article summarizes CBRE’s findings.
Office market in downtown Boston
CBRE highlighted the issues of remote work from home and their impact on the market in Q1 2021. Occupancy increased dramatically during the year.
Office space utilization is three times higher than a year ago. The Boston office market has recorded the second consecutive quarter of growth since 2019 with 426,000 s/f office absorption. The trend reported last year of large office tenants (residents over 20,000 s/f) moving to newer space has continued. 79% of these tenants have moved to new Class A buildings while leaving Class B buildings behind.
At the same time, with a view to 2022, there is a risk of uncertainty about the office market in the city center, especially about class B space.
Seaport continues to be a magnet with 280,000 s/f office absorption in Q4 2021, accounting for 66% of quarterly downtown absorption. The city ended the year with a vacancy rate of 10.9%, which is still plenty of room — over 9,000,000 s/f.
Cambridge Office Market
Office vacancy in Cambridge is half that of Boston at 5.2% and is close to Boston’s 621,285 s/f at 509,141 s/f positive absorption. Office rents are at a record high averaging $85.83 per s/s (gross).
Major corporate leases have been signed. Facebook has leased 290,000 s/f with a 267,000 s/f sublease at 50 Binney St. and a 22,400 s/f direct lease at 100 Binney St.
40 Thorndike has come back to life with Leggat McCall Properties and Granite Properties in a joint venture with CBRE Investment Management to fund and fully refurbish its 422,000 s/f tower, with delivery scheduled for mid to late 2023.
This is a strong indicator that once concerns about the pandemic are contained, businesses and employees will feel comfortable returning to the office.
Suburban office market
The suburban office market, which was hit hard in the first two quarters of 2021 with a negative absorption of 617,077 s/f, recovered in the fourth quarter of 2021 with a positive absorption of 305,061 s/f.
While leasing activity paints a picture of recovery, the sublease market shows little. Clarks’ 120,000-square-foot building is a prime example of subleases being withdrawn from the market, even though sublease rates have remained steady year-round.
With demand for office space dwindling, many owners are exploring the possibility of converting their office buildings for life science use. The process is far from automatic due to the high ceiling requirements (16′-17′), mechanical systems and hospital-like costs that eliminate many features.
In terms of market rents, the average rent for offices in the suburban market is $25.42 per s/h (gross), 36% below the City of Boston and 30% below the City of Cambridge. This rent spread has given the suburban market a boost.
The Boston Industrial Market
The current level of industrial demand for robot manufacturers, bio-manufacturers, logistics, wholesalers, retailers and transport companies has pushed vacancy rates to record lows and asking rents to record highs. The vacancy rate is 1.5% and average asking rents are $12.55 per s/s, NNN.
Industrial absorption for the fourth quarter of 2021 was 7,547,590 s/f, a record high for a single year.
Current levels of industrial demand will exceed supply for the next 18 to 24 months. The speculative development pipeline of land totals only 2.9 million s/f due to significant barriers to entry and a lack of developable industrial space.
Once classified as Tier II, the Boston market has risen to the top of its classification. The quality of the property overrides any questions. Dilapidated old buildings with low ceilings and outdated designs do not fit into this framework.
The industrial market in the greater Boston area now has top-notch fundamentals with global capital-seeking real estate in this market.
The Laboratory Market
The laboratory market has become the top sector in the Boston area since its inception in the early 2000’s.
The laboratory market is location-centric. Kendall Sq., Harvard/Allston, the Seaport/Fort Point Channel continue to shine. There is a sharp decline in second tier locations, driven by venture capital money placed only in locations with the highest potential and the lowest risk. Somerville has been added to the list of key locations.
There are 11,300,000 m² of space under construction. Leasing reaches record highs, driven primarily by venture capital.
These are extraordinary times in a city recovering from the pandemic faster than any other in its competitive arena. Boston is one of the best places to live, play and work. I never missed a day away from the office, which is my library of information, to adequately represent my growing list of clients.
Webster Collins, MAI, CRE, FRICS is Executive Vice President in the Valuation and Advisory Services Leadership Team at CBRE, Boston, Mass.