Downtown Boston Office Market Rebounds in Q4 2021

Andy Hoar

Boston — Notable expansions and relocations in the downtown Boston office market have kept the sector on an upward trajectory according to CBRE’s Q4 market report. Boston recorded the second consecutive quarter of growth since the pandemic began with 426,000 sq. ft. of positive absorption in the fourth quarter and 621,000 sq. ft. year-to-date. “The Boston market experienced volatility throughout the year as new Covid variants impacted companies’ decisions on return to work and potential real estate strategies,” said Andrew Hoar, president of CBRE Greater Boston. “As we entered the fall, leasing velocity showed signs of life especially in mid-size transactions of 20,000 to 40,000 sq. ft.”Demand levels were steady, declining slightly in Q4 to 3.3 million sq. ft. as several tenants signed sizable leases during the quarter. The demand profile of new tenants actively seeking space has shifted slightly as deals were completed, with 72 percent of the current demand coming from firms in the FIRE (Financial Services, Insurance and Real Estate) and TAMI (Technology, Advertising, Media and Information) sectors. “Several large transactions will be announced in the first quarter reflecting the resiliency of the Boston market and the building optimism that 2022 will be a strong year for office leasing,” said Mr. Hoar. “Trends including health and wellness and a flight to quality will be pervasive in the new year, as companies come to grips with their hybrid work policies and labor retention strategies. And, as in other early phases of recoveries, companies committing to a thoughtful strategy will be rewarded with attractive economics.”Overall availability decreased to 17.9 percent and vacancy declined to 10.9 percent to end the year. Asking rents downtown have defied forecasted declines and ended the quarter up $2.16 per sq. ft. from pre-pandemic levels at $69.61 per sq. ft. gross. Rent growth is happening largely in Class A product, where asking rents are up $2.76 per sq. ft. gross from pre-pandemic levels to $75.30 per sq. ft., while Class B buildings have seen a $1.27 per sq. ft. decline over that same period. As rents have held steady, concession packages are becoming more lucrative and competitive. A noticeable uptick in leases signed in the fourth quarter included four transactions over 50,000 sq. ft. Another three leases of this size remained committed at year end. Very strong activity was seen in mid-size leases (20,000-40,000 sq. ft.) and activity in the sublease market has been strong since the pandemic began. Throughout the downtown market, over 5.6 million square feet of office space is under construction with estimated completion dates ranging from 2022 to 2025, with 53% of this space pre-leased.The Central Business District recorded its second consecutive quarter of positive absorption with 115,000 sq. ft. in the fourth quarter, shrinking the overall year-to-date absorption to negative 382,000 sq. ft. while the sublease availability rate declined by 20 basis points (bps) to 3.0% quarter-over-quarter. In total, 24 new sublease spaces totaling 227,000 sq. ft. become available in the third quarter.Asking rents in Back Bay increased in the fourth quarter to $70.79 per sq. ft. with Class Arents increasing sharply by $0.80 per sq. ft. gross to $74.14 per sq. ft., reducing the decline of the last two years to about 5.6%. Vacancy declined 20 bps to 7.9 percent while sublease availability declined by 10 bps to 2.5% as more than 66,000 sq. ft. of subleases were signed or pulled back for re-occupancy during Q4.The Seaport district recorded 280,000 sq. ft. of positive absorption in the fourth quarter with availability and vacancy both declining to 11.8 percent and 9.5 percent, respectively. Sublease availability declined 160 bps to 2.7 percent, as 170,000 sq. ft. of sublease space was leased in the fourth quarter and another 24,000 sq. ft. was withdrawn.