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Are Empty Offices In Boston A Sign The Economic Fall Is Here?

A spike in landlord concessions, leasing issues in Back Bay and price turnoff could signal momentum is slowing in Boston’s office market, according to a new report. But others say the real issue stems from macroeconomic events well beyond the city’s control.


“We’re starting to see landlords be a little more thoughtful with concession packages, which means they are concerned with finding tenants for long-term leases,” Savills Studley Senior Vice President James Halepis said. 

Although Savills Studley’s Q1 2017 report asserts Boston remains a top-performing market in the U.S., it points to signs that a few of the office sector’s fundamentals are slowing down. Landlords have reacted to weaker leasing activity by boosting concessions in areas like tenant improvement allowances. These stipends have jumped by as much as $10/SF in more exclusive Class-A buildings. 

The area’s leasing volume is 10.7% below the region’s long-term average, according to the report. Greater Boston’s Class-A average office availability rate has increased to just over 15%. Back Bay’s availability pushes even higher to 16.4% and could be a sign of tenants being turned off by the submarket’s $70+/SF asking rent.

“The willingness of tenants in Boston to pay for quality space may be finding its limit at the very top of the market,” Halepis said. “Buildings in Back Bay are having some difficulty leasing space as tenants look for alternatives in the Seaport and other areas.”


Others are not as concerned with fluctuations like these and say the real crash will come from factors outside the city's influence.

“The next downturn will be caused by something macro: foreign policy, something with the administration or because we’re just ripe for a downturn because it’s been so many years since the last,” NAI Hunneman Director of Research Liz Berthelette said. 

The average period of time between two recessions is six years, according to Mark Hickey, a real estate economist for CoStar. It has been eight years since the 2009 recession.

“Everyone thought there was going to be a recession in 1998, and it ended up being in 2001,” Hickey said.

Getting any CRE expert to give an estimate as to when Boston’s crash will come is no small feat. At Bisnow’s State of the Boston Market event earlier in June, most panelists agreed the city was playing in extra innings with its strong economic performance, but nobody could point to a specific weakness that would cause the city to falter.

The city’s lack of reliance on one industry is how it perseveres, Berthelette said. Boston’s diverse portfolio of healthcare, life science, higher education and finance companies give it a strong economic foundation. Even in the tech industry, which some economists have said could be on the verge of a bubble, the city has a focus on biotech companies viewed as more reliable.

Demographics and the dynamics of how people work could evolve and impact the future of the Boston office market. Halepis points to the corporate pivot from allowing employees to work from home to ordering them back to the office as one way empty spaces could eventually get leased. 

“It is this interesting market dynamic where rents are high, but bigger spaces aren’t getting leased,” Halepis said. “But this big corporate push to return to the office could change the game.”

Historic and projected growth of the American workforce population

Berthelette is more concerned with a potential demographic cliff Boston and the entire country is facing. While millennials are now America’s largest generation, accelerated baby boomer retirement over the next five years is expected to ramp down the workforce population, which could have an impact on the office market nationwide. 

“There will not be enough workers to fill jobs, which will weigh on absorption,” Berthelette said. 

Boston’s population growth appears fine for the next several years, but Hickey said it is expected to drop after around 2023. This appears to weigh on his economic forecast.

“The question is are we 1998 or are we 2001,” he said. “I happen to think we are 1998.”