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Boston’s Office Market Closes 2017 On High As City Awaits HQ2 News

Boston closed out 2017 with low office vacancy and a healthy backlog of projects, but the year was still the market’s lowest-performing since 2011.

The Seaport before much of Seaport Square's development got underway

“We do appear to be in an ‘if you build it, they will come’ era for central Boston & Cambridge real estate,” Perry Brokerage Director of Intelligence Brendan Carroll said.

Boston’s office market had a healthy Q4, according to Perry Brokerage’s Q4 2017 Blue report. There was 624K SF of net absorption, which lowered overall Greater Boston office vacancy to 10.3% and was the highest level seen in three quarters. 

“What we really saw was a continuation of surging demand for well-located and new product,” Carroll said. “When taking a look at the 21M SF of combined positive absorption since mid-2011, 82% has taken place at either new product or product in urban Boston, Cambridge or the Streetcar Ring.”

While new product in the urban core remains wildly popular, Carroll notes these popular submarkets account for only half of Greater Boston’s market inventory. This, coupled with changing workplace trends, could account for the slowdown in absorption.

“We are seeing an increase in workplace efficiency programs, but decreasing momentum in work-from-home policies,” Carroll said. “These trends may be somewhat offsetting each other.”

Rendering of Cambridge Crossing

Most of Greater Boston’s office activity was concentrated in the urban core. Rapid7 leased 147K SF at the under-construction first phase of Boston Properties’ Hub on Causeway.

The 1.5M SF mixed-use development is adjacent to North Station and the TD Garden in the West End and drew attention at the end of 2017 for the developer, along with partner Delaware North, attempting to rename the surrounding area “Uptown.”

North on the Orange and Green lines from the neighborhood dangling in moniker purgatory, work commenced on a 430K SF office building in 2017 at Cambridge Crossing, DivcoWest’s new name for the development formerly known as NorthPoint. The 5.5M SF project will be much-needed space relief for congested Kendall Square and is touted as a key component in a Somerville pitch for an Amazon HQ2 site spread along the Orange Line from North Station to Assembly Row.

“Activity along the Orange Line is blowing away expectations,” Carroll said. “Every project along the line has been more successful than the last, and Cambridge Crossing is entering the picture as a CBD-adjacent component of the line.”

Tenants absorbed 245K SF in urban Boston over Q4, lowering the vacancy rate from 8.9% to 8.5%, but some might wonder if the positive streak is limited to areas like downtown and the Seaport.

Tech, advertising, media and information companies have dominated the cycle, which has focused largely on the waterfront and less on the financial and law firm-heavy Back Bay. The neighborhood’s 10% vacancy is above urban Boston’s 8.5% average, but Carroll is not ready to sing a swan song for the enclave.

Perry Brokerage Director of Intelligence Brendan Carroll

“The Back Bay remains one of the most compelling areas within our region, with the highest premium to Financial District Class-A rents on record, at 17%,” Carroll said. “This is substantiated by one of the city’s most well-rounded live-work-play environments and excellent transit connectivity.”

The neighborhood is poised for liftoff. When Colliers International Director of Research Aaron Jodka reported in early 2017 a record number of companies actively looking for Boston offices, he noted Back Bay for its opportunities.

New co-working spaces and tech company growth are giving the neighborhood a new feel, and Perry's report notes e-commerce company Wayfair could drastically impact the submarket’s office climate. It is looking to increase its footprint from 350K SF to 1M SF. 

“There’s an above-trend percentage of available space, which is a rare tenant opportunity,” Carroll said.

Of course, the biggest office opportunity of all would ideally arrive by way of Seattle, when Amazon is expected to announce at some point this year what city will land its second headquarters. Several municipalities in Greater Boston submitted bids for HQ2, which seemed to give the region’s office narrative a highly optimistic shot in the arm for the latter half of the year. 

“The Amazon HQ2 effort not only forced us to put our story together for Amazon, but helped us organize our thoughts as we look to attract operations of other companies,” Carroll said. “Generally, I think it also helped reinforce to ourselves that we’re really a pretty competitive place.”