Uncertainty Clouds Greater Boston’s Office Market as Global Pandemic Takes Hold, Reports NKF


BOSTON–Following a banner year of net absorption and rent gains, Greater Boston’s office market slowed in early 2020, according to a report by Newmark Knight Frank.

“Historically, first-quarter activity is known to be more measured and, given the market’s late-stage expansion phase, slower growth was certainly a near-term risk. Nagging concerns over macro headwinds have given way to a “black swan” event that will more than likely ignite a global recession,” NKF said. “The COVID-19 pandemic and subsequent social distancing measures have led to widespread work-from-home policies and will likely weigh on growth throughout the U.S. office market.”

Users with longer lead times will likely shelve any major real estate decisions until a clearer picture emerges from this outbreak, according to the report.

“While the near-term outlook remains precarious, Greater Boston started 2020 with some of the strongest fundamentals the market has ever seen,” the report said. “A recent moratorium on large-scale

construction sites in both Boston and Cambridge could also limit over-supply. Look for successful long-term growth to return once the current challenges subside.”

Here are more finding from the NKF report:


Boston’s first-quarter performance was quiet as leasing activity continued to ease. Vacancies held steady at a cyclical low of 7.1%, while net absorption dipped into negative territory for the first time in nearly three years.

Most of the major office leases executed during the first quarter, including Acadian Asset Management (108,185 square feet), Seyfarth Shaw LLP (66,418 square feet) and GID (47,005 square feet), were renewals or extensions. Foundation Medicine and Forward Financing each subleased more than 25,000 square feet as well. Recent frothiness had some larger users examining future space requirements well in advance of their expiration.

However, tenants suddenly have more bargaining power than they did just a few months ago and groups with shorter lead times will likely push for 1-2-year extensions.

Presently, many experts believe a pandemic-induced market correction will be less impactful than the Great Recession. Market fundamentals are relatively tight and landlords were still pushing through rent gains in early 2020, particularly among Class B assets.

Strong underlying demand drivers will ultimately benefit Boston’s recovery once these current headwinds are dealt with.

The COVID-19 outbreak is also having a material impact on the built world. In order to curtail the spread of this virus, Mayor Walsh put a stop to all construction projects in Boston; bringing a halt to the city’s long-running building boom. With 3.5 million square feet of office development under construction and several million square feet more in the planning pipeline, the CBD could see fewer completions than previously anticipated.

Delivery timelines for projects already underway, including 2 Drydock Ave, One Post Office Square, 321 Harrison Avenue, One Congress Street and Winthrop Center, will most certainly extend beyond current projections. timelines for projects already underway, including 2 Drydock Ave, One Post Office Square, 321 Harrison Avenue, One Congress Street and Winthrop Center, will most certainly extend beyond current projections.


The office sector’s performance to kick off 2020 closely mirrored conditions witnessed across many of the urban core submarkets. Net absorption in Cambridge was flat in the first quarter, faring slightly better than Boston’s CBD, but still marking a minor decline in three of the past four quarters. While there is little debate that the leasing market’s exceptionally strong fundamentals have been returning to a more sustainable level, it is worth reiterating that office space is still at near-to-full occupancy with vacancy averaging 4.6% in the first quarter.

The conversion of third-floor space at CambridgeSide Galleria into office use added roughly 140,000 square feet of vacancy to the market, pulling vacancy up from 3.5% a quarter earlier. This was the second consecutive quarter with an office delivery, a rarity in what is likely to remain a supply-constrained market given high preleasing rates in projects delivering through 2021.

Moreover, Cambridge will likely see even fewer deliveries in the near term. Following in Boston’s footsteps, the city recently suspended construction work on both public and private properties, which will extend project timelines across Cambridge.

The market continues to see a steady increase in both direct and sublease space, which combined rose above 1.0 million square feet, a level last seen in the first quarter of 2015. The increase in availability, which still amounts to less than 10.0% of total inventory, is a result of tight supply conditions that permeated the market over the past decade.

New construction is finally providing some relief, but at the same time, more tenants are being squeezed out of the market from both sizing and cost perspectives. Activity in recent months typified what is generally a slower first-quarter period for office leasing.

Editas Medicine leased a floor at 1 Main Street, while the majority of other new leases were for spaces less than 10,000 square feet. Asking rents grew at a slightly lower rate in the first quarter and, given the general pullback in activity across the wider market amidst the COVID-19 pandemic, landlords will seemingly have a difficult time justifying another increase in asking rents this year.


The consolidation of several more large occupiers in the suburbs pushed vacancies higher and continues to offset otherwise stable absorption gains seen in the latter stage of the current expansion cycle.

At 15.3%, overall suburban vacancy rose 50 basis points year-over-year, but remains within reach of its cyclical low of 13.8%. Philips’ relocation to Cambridge this quarter freed up 365,000 square feet of office space in Andover, while State Street’s consolidation in Quincy returned nearly 245,000 square feet to the market. Liberty Mutual Insurance’s planned sale of Riverside Office Park in Weston added an additional 220,000 square feet vacancy to the West–Route 128 submarket, which had vacancies approaching 10.0% as recently as early 2018, but has seen several other notable tenant consolidations and relocations to Boston that have pulled vacancies up to 13.3% as of the first quarter.

The majority of the quarter’s activity took place within the 25,000 to 50,000 square foot range. While several tenants in this segment expanded or occupied newly leased space, most opted to renew in

place. Staples is staying in the suburbs after executing one of the quarter’s more significant deals in the form of a sale-leaseback on its 666,100-square-foot headquarters in Framingham. Cambridge-based

Abcam signed a new lease for more than 100,000 square feet at 152 Grove Street in Waltham, bringing the recently renovated office and flex asset owned by Hilco Real Estate to fully committed.


The closing of a diverse mix of high-quality assets across the CBD and Inner Suburbs continued to propel investment sales volume in the early months of 2020. The saturation of CBD Class A sales in recent years is fueling more sales of Class B and non-traditional office buildings, notably those suitable for life sciences users. Investment sales volume for the Boston metro stood above $2.0 billion for a fourth straight quarter as the region remains high on investors’ target list.

Three Class B office assets in the CBD changed hands at an average price of nearly $700/SF. Blackstone acquired 179 Lincoln Street, Investcorp and Brickman Associates bought 535-545 Boylston Street and Nan Fung Life Sciences purchased One Winthrop Square. The latter buyer, a Hong Kongbased developer, also acquired the Class B building at 51 Sleeper Street in Fort Point from Brookfield and plans to redevelop the property into commercial lab space.

Notable Class A activity included Starwood acquiring 60 State Street for over $600 million from J.P. Morgan and Oxford Properties Group and Rockpoint Group divesting a 50% stake in 75-101 Federal Street to Carr Properties. Suburban investment turned more active, with a sustained focus on laboratory, single-tenant and rejuvenated assets.


Greater Boston maintained solid momentum going into 2020, but the tides turned quickly. A global pandemic to this extent is almost unprecedented in modern times and the impact on the economy, financial markets, commercial real estate, etc. are already being felt across the entire nation.

The retail, restaurant, hospitality, travel and trade industries have been hardest hit so far. Office-using sectors may begin to feel some pain in the coming quarters as well. However, long-term effects on the local office market remain to be seen as the probability of a correction grows.

A bestcase scenario would involve a quick, mild downturn while worst-case scenarios would entail a steeper, more prolonged decline. It is too soon to tell how current conditions will play out, but the Greater Boston metro is well-positioned to weather the incoming storm.

(Source: Newmark Knight Frank)