Boston Office Market Remains Soft As Sublease Space Surges
Boston's office market has seen better days.
The Greater Boston office market saw more than 1M SF emptied in the third quarter, thanks to a surge in sublease listings in neighborhoods such as Back Bay, The Financial District and the Seaport, according to reports from Colliers International and Hunneman.
While negative absorption topped 1M SF, the companies have slightly different takes on how much space lessors put on the sublease market in the quarter. Colliers estimates 630K SF was put up for the sublease between July and September, while Hunneman calculates it at 774K SF.
More than 2M SF has hit the sublease market since the start of the coronavirus pandemic in March. Many of the companies looking to rent out their offices are tech firms that have hit hard times in the economic slowdown caused by the pandemic.
Among the quarter's more noteworthy deals was Pearson Education taking 43K SF in the Financial District.
"Historically, this is a larger ratio of office inventory compared to the Great Recession of 2008 and is closing in on the dot-com bubble of the early 2000s," Hunneman officials wrote last week in their third-quarter office report. "The suburbs, on the other hand, have not been hindered as much as the urban markets, although sublet space is mounting as well in select submarkets, which already have had above average vacancy rates and are starting to see rental rates decline."
Though companies are permitted under the commonwealth's Reopen Massachusetts plan to host up to 50% of their workforce in their office space, most aren't doing it because many employees remain fearful of contracting the virus.
Many employers have delayed their office returns until 2021. Some may be waiting for a vaccine that government officials don't expect to be widely available until spring at the earliest.
"I would expect the market will get less worse in the fourth quarter, with not as substantial negative absorption, and start to stabilize in 2021," Aaron Jodka, Colliers' Boston-based director of research, said in an interview. "That's predicated on the development of an effective vaccine to the virus and the ability to distribute it."
Most companies have hesitated to make long-term decisions, which is driving vacancy up and rents down across the country, particularly in urban markets. While Boston hasn't seen canceled leases, like Pinterest in San Francisco, or tenants deciding not to occupy big spaces, like REI in Bellevue, Washington, or Walmart in Herndon, Virginia, it has seen hardly any new ones, either.
"Leasing activity is just a fraction of its normal market rate," Hunneman said.
According to Hunneman, most of the city's empty office space is the result of businesses hitting "pause."
"When office users decide to 'press play' again, they will have better and more options to work with than before, leading to what is expected to be an active year in 2021," the company says. "The flu pandemic of 1918 brought on the Roaring '20s. Will this pandemic do the same for Boston? We think so."
Even when the pandemic ends, employers will also have to remain flexible on other issues of importance to their employees like child care for the foreseeable future. Work may never be the same.