Analyzing the Evolution of the Greater Boston Office Market: Q4 2019 vs. Q1 2024

Introduction:

At the close of 2019, the Greater Boston office market was thriving, with record-high demand and escalating rents, particularly in the technology and biotech sectors. However less than 5 years later, and the commercial real estate office landscape has drastically changed. We will delve into the dynamic shifts in the Greater Boston office market from Q4 2019 to Q1 2024. In this two-part blog, we will explore how the landscape of office space in Greater Boston has evolved over the last few years, reflecting on the impact of economic changes, shifting work patterns, and weakening demand.

1.)   Market Overview:

Q4 2019 Market Summary

• The Greater Boston market ended 2019 on a high note. Demand for office space in the City of Boston was at an all-time high and rents increased by more than 10% year over year. The technology and life science sectors were the main drivers in the market.

• Venture Capital funding increased to nearly $11 Billion in 2019, which represents an increase of $2 Billion from the previous year. Strong investment activity was focused primarily in the biotechnology and life sciences sectors.  

Q1 2024 Market Summary

• Leasing activity represents only 40% from pre-pandemic levels. There have been eight consecutive quarters of negative net absorption. Vacancy is at an all time high, with Boston delivering the largest amount of office space Nationally over the last 12 months and leading the nation in office space under construction (CoStar).

• Businesses have been slow to return to the office, with many businesses adopting a hybrid work model leading to a reduction in the amount of space needed and a significant number of businesses listing their space on the sublease market.
  

2.)   Vacancy Rates:

Q4 2019:

The average vacancy rate in Greater Boston was 9% with particularly high demand from the technology and biotechnology sectors.

• Downtown Boston: average vacancy rate was below 7%. Vacancy rates in downtown Boston were at their lowest point since 2001.

• Cambridge: An average vacancy rate of under 3%. Most notably, Kendall Square’s vacancy rate was under 1%.

• Suburban Markets: Vacancy rate was near 12% by the end the year.

Q1 2024:

The vacancy rate is now more than 20% for the first time in history.

• Downtown Boston: 18%, with the Financial District representing more than 33% of the total vacancy, primarily located on lower levels.

• Cambridge: 14%

• Suburban Markets: More than 20%, with 5 MSF of sublease space and nearly 18.5 MSF of direct space available.

3.)   Rental Rates:

Q4 2019:

• Downtown Boston: From Q4 2018 to Q4 2019, rents had grown an unprecedented 18%, with Class A space experiencing more than 22% rent growth during that same period. (JLL) Average rents in the CBD were at the highest level on record, just below $73.00/SF.  (CBRE)

• Cambridge: Average rents were nearly $86/SF.

• Suburban Markets: Suburban Class A space was roughly $30/SF, with every suburban submarket inside of the I-95 corridor experiencing annual asking rent increases of at least 6%. (JLL)

Q1 2024:

The market dynamics have changed considerably, causing rental rates to decline due to a variety of reasons but most notably, decreased leasing demand and the increase in remote work. With many employers adapting to a hybrid work model, the square footage needs have declined. Sublease availability continues to weigh down the market, providing tenants seeking space with a 20%-30% discount.  

• Downtown Boston: $65.00/SF

• Cambridge: $77/SF

• Suburban Markets: $28.50/SF

In this two-part blog, we will continue to examine the shifting landscape of the Greater Boston office market, focusing on the changes in leasing activity, sublease availability, construction, and the overall market outlook moving forward. Stay tuned for Part 2!