Boston – Despite recording its sixth consecutive quarter of negative absorption in Q2 2021 at 98,000 sq. ft., the Downtown Boston office market is showing modest signs of new transaction activity as companies begin to make decisions on their future office space needs according to CBRE’s July MarketView.
As the office market continues to recover, the Boston life sciences market carried on without a hiccup, posting 180,000 sq. ft. of positive absorption concentrated in the ever-expanding Seaport submarket.
Office space availability rose to 19.2% and vacancy remained flat at 11.9% during the second quarter, which saw sublease space downtown drop for the first time since December of 2019 to 3.2 million sq. ft. After a slight decline last quarter, asking rents increased $0.22 per sq. ft. throughout the city to $67.18 per sq. ft., only $0.30 per sq. ft. lower than the start of the pandemic in Q1 2020.
“With the stabilizing rate of vaccinations and reopening of the city, many tenants now have a different perspective on office space than in previous quarters,” said Andrew Hoar, President and Co-Managing Partner of CBRE/New England. “Companies that they were working fully remote have now begun meeting in person as employees feel more comfortable gathering with their peers and are realizing the benefits of face-to-face interactions.”
Since the beginning of 2021 almost 200,000 sq. ft. of office space was removed by tenants with plans to now reoccupy, and 435,000 sq. ft. was leased. Additionally, several larger subleases are being marketed as direct space.
While the office market slowly returns to a new “normal,” demand for lab space in Boston is healthier than ever with 46 life science companies in the market for more than 2.2 million sq. ft., and over 700,000 sq. ft. of the demand already committed. Almost all committed space is located within new developments or new conversions in multiple submarkets.
“Record venture capital funding is driving demand with a number of VC-backed companies looking for space in the 10,000 to 30,000 sq. ft. range,” said Eric Smith, executive vice president at CBRE. “The number of graduation spaces available for these early-stage companies is limited, not just across Boston, but across Cambridge and closer-in suburban markets like Watertown. The limited number of vacant or quickly available spaces is causing some firms to look outside of the urban core for available space that meets their speed-to-occupancy needs.”
Asking rents for life sciences space across Boston increased 3.8%, ending the quarter at $94.28 per sq. ft. In Seaport, the largest life science cluster in Boston, asking rents increased to $94.81 per sq. ft., up from $89.38 per sq. ft. last quarter. Vacancy in Seaport fell below 1.0%. Availability across Boston increased 140 basis points (bps) to 23.7%, largely due to new inventory breaking ground and starting conversion, with a 12-month availability of 7.5% highlighting the limited number of spaces available in the short term. Vacancy decreased 10 bps to 1.0%.
Landlords and developers across Boston continue to evaluate potential conversions from Seaport to Fenway. Related Beal shifted on the second phase of their One Kenmore Square development in Fenway and are converting three existing office properties to 185,000 sq. ft. of life science space. IQHQ, which purchased 109 Brookline Avenue, also in the Fenway submarket, have begun to convert 60,000 sq. ft. at 20 Overland Street. A total of 2.9 million sq. ft. of lab space was under construction in Boston at the end of the second quarter, including five properties that are under conversion totaling 756,000 sq. ft.