Life Sciences and Industrial Continue Strong Performance While Office Leasing Stalls in Greater Boston: CBRE

Andy Hoar

BOSTON– CBRE released its Greater Boston Office and Life Science MarketViews today for Q2 2020. The reports show that while activity dwindled in the office sector as a result of state-wide non-essential office closures, the demand for lab space continued to soar.

“The Greater Boston office market has seen limited tour activity since mid-March when strict stay-at-home orders went into effect,” said Andy Hoar, President of CBRE New England.  “As the region began a phased re-opening in late May, leasing activity was driven predominantly by lease expirations and less by growth-driven needs as many companies shifted their focus to re-opening their current spaces.”

The Downtown Boston office market recorded the second consecutive quarter of negative growth with almost 930,000 sq. ft. of negative absorption in Q2 2020. Availability and vacancy both increased 110 basis points (bps) to 15% and 8.6%, respectively, as a result of large blocks of sublease space coming to market throughout the city. However, the Downtown Boston lab market remained as robust as ever, posting nearly 78,000 sq. ft. of positive absorption and asking rents increasing by approximately 8% quarter-over-quarter to $82.36 NNN.

The Cambridge office market saw a 3% increase in availability, closing out the quarter at 10.8% as a result of several large spaces hitting the sublease market late in the quarter. Vacancy rates saw a slight increase as well, rising to 5.4% while asking rents declined 1.3% from the previous quarter to $80.70 per sq. ft. (gross), but are still up 1.5% from the same time last year. Activity in the market was primarily driven by the life sciences sector, with the market seeing the least number of requirements paused as a result of COVID-19 compared to any other sector.

The Greater Boston Suburban office market recorded 323,379 sq. ft. of negative absorption in Q2 2020. The vacancy rate increased by 40 bps to 15.4% while availability increased nominally by 10 bps to 19.7%. Despite a higher-than-average amount of sublease space coming to market in the second quarter, the sublease rate remained flat at 2.4%. The market finished out the second quarter of 2020 with an average asking rent of $25.22 per sq. ft. full-service gross, a $0.22 per sq. ft. decrease from the previous quarter but a $1.75 per sq. ft. increase year-over-year. Meanwhile, the Greater Boston suburban lab market saw 21,654 sq. ft. of positive absorption in the second quarter of 2020. Strong demand and low vacancy rates continued to drive rents up, with the suburban lab market finishing out the quarter with an average asking rent of $48.57 per sq. ft. NNN.

“Demand for quality lab space throughout the Greater Boston suburban submarkets remained strong throughout the second quarter, especially in the inner suburbs close to the major life science hubs in Cambridge and the Seaport District in Downtown Boston,” said Steve Purpura, a Vice Chairman at CBRE specializing in the life science sector. “Prices in both Cambridge and Boston are reaching record highs, causing urban migration to slow and tenants to see value in suburban options. With an increase in US-based life science development and manufacturing, the demand for space is projected to outpace the current supply.”

The Greater Boston Industrial market experienced an extremely strong second quarter, recording 218,683 sq. ft. of positive absorption. The urban market as well as two of the three suburban markets experienced positive growth, demonstrating high demand for industrial space throughout all markets. The overall availability rate decreased by 30 bps quarter-over-quarter to 8.4%, while vacancy rates decreased by 10 bps quarter-over-quarter to a historic low of 5.3%.