BOSTON—Greater Boston’s most developers, tenants and landlords are hitting the pause button in the face of current Covid-19 pandemic, according to a report from Boston brokerage firm Hunneman.
“For now, most developers, tenants, and landlords alike are hitting the pause button on decisions that are allowed to be pushed off until more economic clarity is found on both local and national scale,” the report said. “That being said, the market has not come to a halt and many of the cylinders that are needed to ensure solid fundamentals moving forward are still firing.”
The report said that over the last 11 years, the Greater Boston Area (GBA) has exhibited the longest economic expansion since the Post World War II Era and has emerged as an international business hub and a world leader in technology and the life sciences.
“Similarly, the GBA’s office market has run parallel, helping provide the region with the largest construction boom since the same time period which has allowed for the adoption of a significantly more diverse industry base now more than ever before,” said the report, adding that although the GBA provides a buffer against global forces that hinder this growth through the economic backbones of healthcare and education, the metro is still subject to the universal headwinds brought on by unseen circumstances such the COVID-19 pandemic.
The Greater Boston office market started off 2020 similar to the past three years with a slowdown in leasing activity compared to the prior quarter.
“With many year-end decisions being made last quarter to help the GBA achieve one of its largest years in recent history as it relates to the velocity of leasing and absorption, not nearly as many transactions were left to execute and the uncertainty surrounding the global pandemic has only minimized decision-making further,” the report said.
Here are other highlights from Hunneman report:
- A significant supply injection is underway to help alleviate historically high office rents and provide tenants with a wider array of options as the GBA evolves.
- Just over 2 million square feet of new supply has kicked off this quarter across the metro and while mainly concentrated in the Urban Market, the Route 128 Market is transforming into a destination-market.
- Historically a relief valve for Boston and Cambridge, Route 128 is becoming a top choice for tenants considering a move to recently built Class A space or unique product such as Brick and Beam which has become limited. With over 11 million square feet in the construction pipeline, over 50% is already preleased, most of which will deliver in 2021.
- Average asking rents were static this quarter with the exception of select pockets such as Watertown and Somerville which are being squeezed by overspill from the Cambridge market and a lack of options on the northern and southern portions of the Route 128 Market.
- 2019 marketed the largest annual increase in average asking rent throughout the region over the last decade and with leasing activity down this quarter, limited pressure has been placed on rates over the last three months.
- Moreover, net absorption remained flat this quarter with significant space give-backs along Route 495 and in Boston, limiting market growth. However, between Cambridge and the Route 128 submarket, occupancy gains were enough to put the market into positive territory with just under 500,000 square feet of net absorption taking place.
- Looking ahead, limited pressure on urban market rents is expected to persist in the short-term with construction freezes in Boston and Cambridge still in play and tenants hesitant to make immediate decisions if they are able to.
- Furthermore, tenant build-outs are anticipated to be less popular through the remainder of the year with more companies expected to be agile with time-to-occupancy projects. This is expected to bode well for landlords who have built-out spec suites and can capture tenants in a tighter window. Conversely, tenants who are able to renew and extend their current leases in the short term are expected to do so to defer real estate decisions at the moment.
