BOSTON–Boston’s vacancy recovery has lost some momentum and sublease space is increasing, but preleasing in new construction remains solid, according to a report by Colliers Boston. The report added that stronger demand is helping the Class A market to outperform Class B and top-line rents remain relatively stable.
“The recovery has lost some steam in Boston, and the overall availability rate ended 22Q2 at 15.6%. Although that is healthier than the year-ago level of 15.7% and net absorption over the past four quarters remains firmly positive (about 900,000 square feet), the slowdown represents the second consecutive quarter of rising vacancies,” the report said. “At about 22%, Class B availabilities remain near record highs. Higher-quality assets are faring better — the amount of empty Class A space is only modestly above its historical average.”
Here are the other highlights from the Colliers report:
- With more than four million square feet worth of tenants seeking space in Boston, owners have opportunities to get leases signed.
- Office-to-lab conversions will help reduce competitive supply and force tenants into the marketplace.
- Full-building leases by growing companies are contributing to net absorption in Boston. In recent months this includes Amazon occupying its new 430,000-square-foot Seaport building (it has another 630,000 square feet underway and due in 2024) and the completion of Whoop’s 130,000 square feet building in the Fenway/Kenmore Submarket.
- Other firms have also increased their head counts and/or raised VC funds needed to expand their workforce in the future. Some of these firms, like SimpliSafe and law firm Gunderson Dettmer, are expanding footprints by taking down large blocks of space in existing Class A buildings.
- However, due to macroeconomic circumstances, the number of local companies shedding workers appears to be ticking up.
- Large deals continue to be signed in new projects. The Druker Company has secured Bain & Company as the tenant for its long-proposed 220,000- square-foot development at 350 Boylston Street, and site prep to demolish existing structures has commenced.
- Further, Goulston & Storrs has reportedly committed to about 100,000 square feet at the under renovation One Post Office Square. These deals, alongside other leases in underway projects, show that a very healthy share of future space is pre-committed.
- Strong demand for new, high-quality space could spur other developers to push forward. Relocations will likely leave backfill space in older assets as companies trade up.
- Sublease space is weighing on market fundamentals. During the second quarter, sublease availabilities increased as numerous companies released space, such as Wayfair and SimpliSafe, which both placed more than 100,000 square feet on the market. As a result, for the second consecutive quarter the total amount of sublease space in Boston increased, ending the midyear at almost 2.8 million square feet.
- Despite the uptick, the amount of sublease space available is still 19% below the cyclical 2021 peak.
- As Boston’s biggest submarket, Downtown has the largest collection of sublease space available; however, on a relative basis, Charlestown and Allston/Brighton contain the densest concentrations of sublease space.