CBRE: Boston Downton and Suburban Office Markets Stabilize by Year-End

Kevin Kennedy

Boston – CBRE released its Q4 2022 Office Figures for Boston downtown and suburban office markets, which experienced a recovery during the first half of the year and fared better than most other major cities due to a diverse tenant base, but economic fears and the adoption of remote work strategies affected the market by year-end.

Leasing activity in the downtown market during Q4 was 756,000 sq. ft. to end the year with a total of 4.8 million sq. ft. Overall leasing activity in Boston’s suburban market was 727,609 sq. ft. with over half of the total transactions during the quarter coming from new deals, and 30% from renewals.

“Although the year cended on a slower note, deal activity during 2022 was a shining light, increasing 10% from 2021 and over 130% from 2020 levels at the height of the global pandemic,” said Kevin Kennedy, senior vice president, CBRE. “The Boston market has fared better than most cities, ranking in the top three of the largest 11 markets in crucial areas such as leasing activity, tenants-in-market, and sublease availability. One trend we will continue to see is flight-to-quality, especially in the suburban market which saw 65% of all deals being tenants drawn to Class A office space as employers implemented back-to-office protocols into the new year.”

Financial services, insurance and real estate companies led the way with 1.9 million sq. ft., a whopping 40% of the total leasing activity in the downtown market during 2022. During Q4 the largest transaction was Medtronic’s 113,000 sq. ft. lease at Seaport’s Channel Center, followed by UBS’ 66,000 sq. ft. renewal and expansion at One Post Office Square in Boston’s CBD. Despite robust activity throughout the year, asking rents declined for three consecutive quarters, equally for Class A and B office space, ending Q4 down $1.25 to $66.60 per sq. ft. Between 2021 and year-end 2022, direct gross rents dropped 4.4% or about $3.00 per sq. ft. A major reason for the market’s mixed bag was the rise in sublease space, as the Boston downtown office market had 515,000 sq. ft. of sublease additions during Q4. For 2022 the market added a total of 1.5 million sq. ft. of new sublease space.

Similar to Boston’s downtown office market, the suburban region of Greater Boston saw recovery during the first two quarters of 2022. However, fears of a recession and the continuation of remote working and hybrid models by many companies brought the market back to earth. During Q4 leasing activity in suburban Boston was 727,609 sq. ft., a 171,230 sq. ft. decrease from the previous quarter. Despite this decline in leasing, other metrics such as average asking rents remained consistent. In fact, asking gross rents increased to $27.94 per sq. ft., while the overall availability rate decreased by 10 basis points to 20.4%. In addition, overall vacancy dropped quarter-over-quarter to 15.8%.