Boston– Demand from technology tenants has driven office rents in Boston’s East Cambridge submarket up more than 30 percent over the past two years, according to CBRE’s annual Tech-30 report, which measures the tech industry’s impact on office rents in the 30 leading tech markets in the U.S. and Canada.
Average office asking rents in East Cambridge rose 31.1 percent to $95.26 annually from Q2 2016 to Q2 2018, the most among the top tech submarkets from each of the 30 markets in the CBRE report.
Rent growth in East Cambridge has significantly outpaced the broader Boston market, which saw rents rise 6.3 percent over the same time period. At 150 percent, the premium between East Cambridge’s rents and those of Boston overall was wider than any other primary tech submarket and its overall market among the 30 markets included in the CBRE report.
East Cambridge’s stratospheric rents are limiting new entrants to the submarket to credit-worthy, high-revenue firms, and the submarket’s tight vacancy rate of 2.2 percent is forcing tech firms into other submarkets including the CBD, Back Bay and the Seaport. Smaller firms are increasingly taking space in downtown fringe markets such as Fenway/Kenmore and North Station.
“East Cambridge’s demand and rents have exploded over the past two years,” said Adam Brinch, Executive Vice President/Partner at CBRE/New England. “Due to its proximity to world-renowned institutions, network of tech companies and convenient transit, we do not expect the demand to subside anytime soon.”
Top 10 Tech Submarkets by Rent Growth
| SUBMARKET | RENT GROWTH RANK | GROWTH RATE Q2’16- Q2’18 |
| East Cambridge (Boston) | 1 | 31.1% |
| Midtown (Atlanta) | 2 | 19.8% |
| South Orange County (Orange County) | 3 | 19.0% |
| Reston/Herndon (D.C.) | 4 | 16.2% |
| Tempe (Phoenix) | 5 | 15.8% |
| Mount Pleasant & False Creek Flats (Vancouver) | 5 | 15.8% |
| RTP/I-40 Corridor (Raleigh-Durham) | 7 | 12.8% |
| Santa Monica (LA) | 8 | 12.8% |
| Downtown (Indianapolis) | 9 | 12.6% |
| North Loop (Minneapolis/St. Paul) | 9 | 12.6% |
Impact of Tech Job Growth on Office Markets
The influence of tech job creation on office market growth is pervasive across the U.S. and Canada, with eight of the Tech-30 markets posting rent growth of 10 percent or more between Q2 2016 and Q2 2018. While Boston’s high-tech job base has only grown 7.7 percent over the past two years, technology, media, advertising and information companies (TAMI) account for more than 40 percent of tenants in the market.
Country-Wide Expansion of Large Tech Firms
Technology companies based in the top four tech headquarters markets—the San Francisco Bay Area, Seattle, Boston and New York—are expanding into new markets, creating more demand for office space and driving office rent growth in the beneficiary markets. Together, tech firms headquartered in these four markets have taken more than 25 million sq. ft. of space outside of their headquarters markets over the past five years, led by firms in the San Francisco Bay Area, which accounted for 18 of the 25 million sq. ft.
The Boston office market has benefited from this trend, with San Francisco Bay Area firms taking 1.8 million sq. ft. there over the past five years.
“As space availability in top tech submarkets continues to tighten, we expect large tech companies to continue to expand outside their headquarters markets—including further into secondary and even tertiary markets. Large tech company expansion into smaller markets will help foster innovation clusters, further boosting job creation and creating additional office demand,” said Colin Yasukochi, Director of Research and Analysis for CBRE in the San Francisco Bay Area.
