Boston Office Absorption Turns Positive As Lab Conversions Take Space Offline
Tech and life sciences firms flocking to Class-A office space powered Boston's office market to record its first quarter of positive absorption since the onset of the coronavirus pandemic.
The market recorded 307K SF of positive absorption in Q3 — meaning tenants took up more space than they vacated across the market — after a total of 5.5M SF of negative absorption amassed over the past six quarters, according to Colliers research.
“The first signs of recovery are emerging,” Colliers Research Director of U.S. Capital Markets Aaron Jodka said. “Then we expect a strong Q4 largely because of the commitments that were done years ago on under-construction buildings.”
Financial services firm Wellington Management signed the quarter’s largest office deal with its 524K SF, 10-year lease, a renewal and 66K SF expansion at the Atlantic Wharf tower. Tech giant Hubspot signed a 205K SF lease expansion in Cambridge, while other tech firms inked leases at new Class-A space in Waltham and Burlington.
Vacancy declined slightly from 15.7% in Q2 to 15.2% in Q3 while the overall average asking lease rate dipped less than a dollar to $62.66, according to Colliers. Boston’s available sublease space dipped by nearly 800K SF, Colliers reported, as a result of short-term deals and companies delisting space despite a muted post-Labor Day office return.
Sublease deals include design firm CBT's new headquarters in the burgeoning Charlestown submarket, telemedicine company Amwell's 45K SF deal at 75 State St., and renewable energy company Avangrid's 39K SF sublease at 125 High St., Lincoln Property Co. reported in its Q3 office report.
The absorption reversal was aided by millions of SF of repositionings across the region. Developers are increasingly tearing down older, vacant offices in Boston’s suburbs to make way for the land-starved industrial market, while even more developers are executing life sciences pivots in Cambridge and Boston, including into the Financial District, according to Hunneman’s Q3 2021 report.
“They may not have the speed to market that other projects do, but at the end of the day, they’re in the core submarket right next to the Seaport, where all the transit goes,” Hunneman Director of Research Tucker White said. “You need to compete for labor. Having a centralized location is advantageous.”
Oxford Properties this year has pitched office-to-lab plays for a combined 550K SF at two downtown office projects, one a former WeWork space. Nan Fung Life Sciences Real Estate is executing office-to-lab repositionings at a combined 264K SF across two properties near the Financial District and in August paid $210M for the 210K SF Two Financial Center, another anticipated life sciences play.
The HYM Group and National Real Estate Advisors are also getting in on the action, pivoting part of their massive Government Center Garage redevelopment to life sciences, this summer pitching a new 399K SF lab building at the rising campus.
The positive dynamics in Boston’s office market are expected to continue through the end of the year, researchers said. Imminent Boston office deliveries include the 10 Fan Pier in the Seaport, a 17-story, 310K SF building pre-leased to MassMutual; 100 Causeway St. at North Station, a 31-story, 627K SF tower anchored by Verizon; and 111 Harbor Way, a 17-story, 525K SF Seaport office tower fully leased to Amazon.
The nearly finished towers stand in contrast to Boston’s four-largest rising office projects, totaling more than 3.5M SF and still largely unclaimed. Only One Congress, the Bulfinch Crossing skyscraper that topped off this summer, is more than 50% leased for financial services firm State Street’s new headquarters.
No new major leases have been announced this year at One Congress, One Post Office Square, the South Station redevelopment or Winthrop Center. Leasing interest for the towers has picked up, researchers said, adding that tenants have emerged on the market that could fill some of those large holes.
“Over the last month or two in particular, people are not worried as much,” White said. “Some requirements have come to light.”