BOSTON – The Cambridge office market posted its first quarter of positive absorption since the third quarter of 2019, showing signs of a return to normalcy after the successful vaccine rollout and lifting of Covid restrictions, according to CBRE’s July MarketView.
Leasing activity in the life science market picked up during the second quarter in Cambridge and has created a very tight leasing market in the sector. Availability and vacancy ended the quarter at 9.9% and 0.8%, respectively. Availability remains relatively high with new construction projects and conversions recently breaking ground, but the 12-month availability ended the quarter at 2.0%, showing the extreme lack of available space in the short term.
The overall Cambridge office market saw 45,000 sq. ft. of positive net absorption in the second quarter concentrated in East Cambridge, which saw over 36,000 sq. ft. of positive absorption. Availability decreased 20 basis points (bps) to 13.1% and vacancy decreased 50 bps to 7.2%. Asking rents remained flat, ending the quarter at $84.63 per sq. ft. Availability in East Cambridge fell 40 bps to 14.0% but remains the highest availability rate across Cambridge due to the amount of sublease space still on the market.
“The second quarter saw sublease space in Cambridge decrease by 22.4% from the year-end high of 1.14 million sq. ft., largely due to this space being taken off the market as tenants had a change in mindset around working from home and a renewed desire to reoccupy their space once it was deemed safe to return to the office,” said Charles Kavoogian of CBRE/New England.
New office tenants in the market signing leases for sublease space also played a part in the steep decrease in sublease availability.
As the overall office market slowly recovers, demand for lab space in Cambridge continues to be extremely strong with over three million sq. ft. of active demand, and a total of 4.7 million sq. ft. of demand for lab space in Boston and Cambridge combined.
“Of the three million sq. ft. of demand in Cambridge, over one million sq. ft. is already committed with leases out, but not yet executed,” said Jon Varholak, vice chairman with CBRE’s Boston Consulting practice. “With extremely limited available space in the next 12 months, and incubators across the metro area operating at full capacity, there continues to be a lack of options for new companies and VC-backed portfolio companies when they are in their prime growth phase.”
Companies expanding out of incubators have continuously created demand across Cambridge, significantly increasing the number of tenants looking for space in the 10,000 to 40,000 sq. ft. range. 2023 is being viewed as a light at the end of the tunnel for many of these companies as this is when new developments and conversions are expected to be delivered. Tenant relocations to new construction will also result in existing second-generation lab space that will be vacated and available for others to backfill.
In the meantime, it is expected that many companies will have to look to neighboring life science clusters like Seaport, Watertown, and Fenway to fulfill their needs. These markets, once seen as a relief valve for Cambridge demand, are quickly filling up with Boston’s lab market ending the second quarter at 1.0% vacancy and the inner core markets, home to life science clusters like Watertown, Waltham and Lexington, ending the quarter at a 3.4% vacancy rate.