Boston Office Market Loses Momentum As Sublease Availability Begins To Rise Again
Sublease availability in the Boston market has started to rise once again after several quarters of declines, a concerning sign for the market as macroeconomic headwinds lead companies to question how much space they really need.
In the second quarter, sublease availability in Boston proper grew by more than 500K SF, according to CBRE’s quarterly office report, which said it was the first quarter the sublease rate increased since Q1 2021.
Across Greater Boston, sublease availability rose from 5.5M SF in Q1 to 6.3M SF last quarter, according to a separate report from Colliers. The Colliers report also found the city recorded 522K SF of overall negative net absorption, more than double the occupancy loss from the first quarter, and the vacancy rate crept up to 15.6%.
“I was hoping that we would be able to continue the momentum of the recovery, but it seems like we lost some of that momentum during the second quarter of the year,” Colliers Research Director Jeff Myers said.
Due to uncertainty in the market, numerous companies have shed space in order to reassess their needs and look into hybrid work models, multiple leasing brokers told Bisnow.
“Over the past two years, real estate organizations and companies who are assessing their real estate have been focused on this return-to-work date and return-to-work strategy,” CBRE Senior Vice President Lauren Lipsomb said. “The problem is you have those issues now, which are coupled with macroeconomic uncertainty, inflation and where different business directions are going that is creating a bigger issue than just returning to work.”
Last week, Bose announced that it plans to close its office at Boston Landing in Brighton. The company listed almost 130K SF at 80 Guest St. as available for sublease, according to the Boston Business Journal. SimpliSafe is also listing 117K SF on the sublease market, the majority of that being its old office that it moved out of last year, according to BBJ.
This week, Facebook pumped the brakes on its 250K SF Boston expansion project in order to redesign its office for a hybrid work environment, the Boston Globe reported. Other tech companies like Akamai Technologies and Wayfair are planning to sublease some of their space, according to the Globe.
“We've seen an increase in sublease supply, but we've also seen the quality sublease space getting leased,” Lipscomb said. “The sublease space that's sitting on the market is more of that commodity older space that is going to be less likely to lease.”
That sublease trend mirrors what is happening across the office market, as tenants are gobbling up Class-A space in the city and leaving behind Class-B buildings. According to Colliers’ report, Class-B asking rents in Boston dropped by 11% last quarter.
The Boston office market had the second-highest occupancy loss in the country last quarter, according to JLL’s national Q2 office report, which found that Greater Boston’s negative net absorption, including subleases, was 1.2M SF, behind only New York City’s 3.4M SF.
Cambridge and the suburban markets performed better than Boston in net absorption, with 249K SF of positive net absorption combined, according to Colliers. Overall vacancy for these markets sits at 16.1%, down from the previous quarter, a trend Colliers attributed to office-to-lab conversions that have removed vacant space
Myers said that this trend might not last as uncertainty in the market persists into the next half of the year.
“If you're in Cambridge in the suburbs, you're not immune to what's happening at the macro level with the interest rates and the stock market valuations and the work-from-home factors that different companies are not immune from that,” Myers said. “But I think Boston has had a worse go at it thus far.”
There are still reasons for optimism about the future of office leasing in the city, as major deals, like Bain & Co.’s pre-lease of 220K SF in the new 350 Boylston St. development, have been signed. Goulston & Storrs is reportedly in talks to lease 100K SF at One Post Office Square, and Amazon finished its 17-story, 525K SF office building in the Seaport.
“The amount of [sublease] space in the market is going to ebb and flow, and it's not like what we've had in previous cycles where you have an onslaught,” said Ben Heller, director of JLL’s downtown Boston team. “The dot-com crisis flooded the market. Several years after that, the financial crisis flooded the market with subleases, and Covid flooded the market with subleases. I think this is now in a sort of a normalizing phase.”
Matt Daniels, brokerage lead for JLL’s suburban Boston leasing team, said his team is still actively leading tours for tenants that are looking for new space. And he said having vacancy in the market can be a good thing because it allows companies to grow.
“There's good activity around a lot of the markets, and deals are getting consummated,” Daniels said. “It's almost a little healthy that they can actually continue to grow here and not have to go to another market.”