Historical market context: Published July 11, 2024. The figures, concessions, and forecasts below reflect the comparison of Q4 2019 with Q1 2024 and the outlook recorded in July 2024. For a decision today, obtain current evidence for the relevant submarket, building type, and lease alternatives. Keep geography, inventory, and metric definitions consistent when comparing reports.

This is part two of our previous blog with the same title.

1.)    Leasing Activity:

Q4 2019

  • With Boston's vacancy rate at nearly 7%, tenants seeking 50,000 square feet in a Class A building had fewer than 10 options available. The downtown market saw significant leasing activity from the technology and life science sectors. In Cambridge, the vacancy rate was below 3%, prompting many life science companies to look outside of Cambridge.

  • Leasing activity in the suburban submarkets was primarily driven by Burlington and Waltham.

Q1 2024:

  • Fast forward to 2024: leasing demand is now less than 60% of its pre-pandemic levels, vacancy rates are at an all-time high with further increases expected before the end of 2024. There is a plethora of sublease availability, and many businesses are still contemplating their needs for office space considering remote, hybrid, and full-time office employees.

  • There have been 8 consecutive quarters of negative absorption.

  • A new record of nearly 26% of the office inventory is available in the Route 128 Mass Pike submarket.

2.)    Sublease Availability

Q4 2019:

Sublease availability was limited to less than 5% of the total office supply in the Greater Boston market. Technology and life sciences firms led the demand for high quality sublease space.

  • Downtown Boston: Sublease space represented a mere 1.5% of supply, with 1.2 MSF on the sublease market.

  • Cambridge: Less than 800K SF.

  • Suburban Markets: 2 MSF of available sublease space.

Q1 2024:

More than 40% of sublease space on the market is concentrated in two submarkets, Route 128 West, and the Financial District. The record amount of sublease space that came on the market during the Pandemic across Greater Boston was primarily due to the rapid shift to remote work. This trend differs from what was observed during the Great Financial Crisis, when companies were aggressively cutting costs and laying off a significant number of employees, resulting in a substantial amount of underutilized space. During that time, many companies reverted to subleasing space to limit losses.

  • Downtown Boston: Nearly 3 MSF of Sublease space available.

  • Cambridge: Nearly 1.5 MSF

  • Suburban Markets: 4.5 MSF

3.)    Construction

Q4 2019:

  • The construction pipeline had more than 5 MSF of office space in downtown Boston under construction, with an additional 10+ MSF either permitted or proposed. At that time, most of the 5 MSF under construction had already been pre-leased. The suburban markets had more than 1.5 MSF under construction, most notably the 128-submarket accounting for nearly 1 MSF.

Q1 2024:

  • Greater Boston leads all major U.S. office markets with more than 7 MSF delivered over the past 12 months. In addition, Greater Boston tops all major U.S. office markets with more than 15 MSF of office space under construction, nearly 5 MSF more than the next highest market, New York City. (CoStar

4.) Outlook Recorded in July 2024

Q1 2024:

Q1 2024 the market’s supply is outpacing demand, as new construction continues to be added to the market. Construction starts will go on the back burner after 2025, given a variety of economic factors including higher interest rates, construction costs, concerns about future economic stability and market demand. By 2026, new office space deliveries are expected to drop below 1 MSF.

  • Tenants hold all the leverage given the current market conditions. Landlords are offering record breaking concession packages to try to attract and retain tenants.

  • Sublease space additions to the market have declined for 3 consecutive quarters, but with a record number of leases expiring over the next year, landlords will continue to feel the pain.

  • Record high Vacancy rates are expected to increase further into 2025, as new office product is delivered to the market.

  • Downtown Boston Dealing with Revenue Losses:

    • Boston depends heavily on property taxes overall, including residential and commercial property. Changes in assessed values and tax rates can affect a tenant’s occupancy cost, but the amount passed through depends on the lease. Review the tax clause, base year where applicable, allocation method, and supporting bills before budgeting an increase.

The 2024 comparison highlighted market alternatives and timing as sources of negotiating leverage. Start 12 to 18 months before lease expiration for standard requirements, or 18 to 24 months for larger or specialized needs. Lease notice deadlines may require earlier action. If you are already inside 12 months, act promptly to review your remaining options.

By only representing tenants/occupiers, our sole focus is on getting the best deal for our clients. We don’t represent any landlords, because it is a simple conflict of interest. We streamline the real estate process, saving clients a significant amount of time and money in the process. Our services come at no cost to our clients.

If you’re interested in learning more about what options your business may have to lower occupancy costs moving forward, please give us a call.