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Boston Office Market Ends Year With Spike In Sublease Listings, Record-High Vacancy

Boston's office market had appeared to be slowly recovering in early 2022, but as economic conditions continued to worsen in the second half of the year, the level of vacancy in the city rose to a new record high. 

Total availability in the Boston office market reached 17.4% at the end of December, a new all-time high that surpassed the vacancy rate seen during the dot-com bust of 2001, the Great Recession and the height of the pandemic, according to Colliers' fourth-quarter market report. 

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The under-construction Winthrop Center tower in Boston's Financial District.

"In the new year, many landlords will be anxiously awaiting the next recovery, whereas tenants may be well positioned to take advantage of favorable leasing conditions,” Colliers Research Director Jeff Myers said in an email to Bisnow

Boston recorded 369K SF of negative office absorption in the fourth quarter and 1.4M SF in the full year, according to CBRE's Q4 office market report. CBRE said its measure of Boston's availability rate rose to the highest level in 20 years at 19.9%. 

The spike in availability comes as many companies look to sublease their excess office space. The city's sublease market saw net additions of 515K SF in the fourth quarter and 1.5M SF in the full year, according to CBRE. 

The amount of space on the sublease market totaled 4.7% of all office inventory, an increase of 1.8% year-over-year, according to CBRE’s report, which said this is the highest sublease rate since the end of the 2001 recession.

“You’re seeing vacancy climb across the board, and no neighborhood has been affected more than another at this point,” said Suzanne Duca, director of research for CBRE

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A graph from CBRE's Q4 Boston office report shows the city's spike in sublease availability.

In 2022, there were major sublease offerings from companies like Wayfair and Reebok, which gave up almost 600K SF in total. As the market headed into the new year, 3.4M SF of sublease space was available, accounting for 30% of available space, according to Colliers. 

The suburban office market also started off 2022 strong, recording 633K SF of positive absorption during the first half of the year, but in the fourth quarter, absorption turned negative, with the suburbs losing 40K SF of occupancy, according to CBRE. 

“The economic headwinds that we keep seeing are really throwing a wrench in companies' decisions and plans,” Duca said.

Although vacancy rates reached all-time highs at the end of the year, researchers did see some positive signs heading into 2023.

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HYM Investment's One Congress is under construction.

Boston recorded 756K SF of leasing activity in the fourth quarter and 4.8M SF for the year, according to CBRE. This represented a 10% increase from 2021 and a 130% spike from 2020.

The Seaport and Back Bay fared better and are expected to be stronger in the new year as major projects deliver new office space that is more likely to attract tenants. 

About 362K SF, or almost half of the leasing activity in Boston, took place in the central business district, 36% of which came through renewals. One of the largest renewals came from UBS, which expanded its lease by 10K SF, totaling 66K SF in the renovated One Post Office Square.

“A lot of the new construction is in the CBD with Winthrop Square and One Congress,” Duca said. “Back Bay has seen a lot of good leasing and new construction.”

MP Boston’s 800K SF mixed-use Winthrop Center tower near Government Center secured three major leases last year: 95K SF from McKinsey & Co., 115K SF from Cambridge & Associates and 39K SF from Income Research + Management. 

Other new construction downtown includes HYM Investment’s One Congress, which became fully leased after InterSystems Corp. leased out the 420K SF in the top 14 floors of the development in May. 

In the suburbs, leasing activity came in at 728K SF, with over half of the transactions during Q4 coming from new leases and 30% coming from renewals, according to CBRE.

Some notable leases in the suburbs include WorkHuman, which leased 157K SF at 100 Staples Drive in Framingham, and NECI, which leased 80K SF at 325 Foxborough Blvd. in Foxborough.

Matt Daniels, New England brokerage lead at JLL, said that compared to other cities and markets nationally, Boston is in a better spot heading into 2023. He said its economy is more diverse, with the life sciences and industrial markets having stronger fourth quarters and office conversions still happening in the suburbs.

“When you look at Boston and you go from really low vacancies to 18%, it looks really bad,” Daniels said. “Then I look elsewhere and I feel really good about what we have here.”