Where Is the Greater Boston Market Today?

• We are seeing generally more velocity and absorption as we pass the mid-year point, but the market is highly bifurcated according to which submarket we're reviewing and what floor tenants are occupying.
• Vacancy for Class A office buildings continues to decrease in the Back Bay (8.8%), East Cambridge (6.7%), and Mid Cambridge (less than 1%), but vacancy ticked up slightly last quarter in the Financial District (15.4%).
• Average Class A asking rents remain strong in the Back Bay ($57/SF), East Cambridge and Mid Cambridge (approximately $49/SF in each area), and Seaport ($51/SF), but they are lower in the CBD ($45.30/SF).
• Vacancy for view space is down to 5% in the Back Bay and 10.9% in the CBD, but it is more than 22% in the lower floors; 55% of the Class A Financial District inventory is in the low-rise portion, where vacancy is 22.9%.
• In the outlying areas, Waltham continues to experience positive absorption, but most suburbs continue to struggle, especially along Route 495.
• Boston-area unemployment continues to fall (4.9% compared to a stagnant 8.1% nationally), but underemployment numbers (individuals who have stopped looking for jobs, are working part-time, or are underpaid) are disappointing.

Where Is the Greater Boston Market Headed? 

• Rents are expected to rise slowly during the next 24-36 months in the hot submarkets, with Back Bay rents peaking in 2015.
• Rents should continue to rise another 5% to an average of $38/SF in the Innovation District.
• Tenants will continue to migrate from Cambridge in search of lower rents in the Seaport District; tenants from select suburbs will consider a "flight to quality" to the Financial District.
• Rising rents in Waltham (up to $28-$32/SF for Class A properties) will benefit Burlington; the submarkets in Framingham and Natick will also continue to tighten.
• High-tech companies are slowly growing again, with more job growth expected along Routes 128 and 495, but it will take years to fill the very high inventory in those markets.

What Does this Mean for Tenants?

• While it has become a landlord's market in the select areas noted here, tenants still have more leverage in most of Greater Boston.
• As a "soft spot" in the Boston market continues to be the lower floors in the Financial District, this creates value opportunities for companies.
• Tenants are encouraged to study the market and develop alternative options at least 12 months in advance so that they can maximize their opportunities.
• Tenants should re-evaluate their space needs as offices continue to shrink.  They should plan accordingly to accommodate staff working in virtual offices and sharing space on site.
• Tied to the above, companies should consider reconfiguring their office space, working with Project Managers to maximize efficiency. 

 For more information on this topic,

see Cresa Boston's Q2 Tenant's Guide: Q2 Boston

or contact one of our market specialists: Source Sheet