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Boston Topples New York As Top Office Market

Boston Office

With a 12-24 record, the Boston Red Sox are not much competition for their rivals, the New York Yankees, during this pandemic-shortened Major League Baseball season.

When it comes to the office market, however, it is a different story. Sales of office towers in the Boston area have topped their counterparts in the New York area for the first time, according to market observers.

A recently released analysis by Hunneman Real Estate of data from Real Capital Analytics and CoStar shows that Boston-area office towers fetched a combined $5.449B so far in 2020, compared with the Big Apple’s $5.445B during the same period.

The data goes back to 1998. Boston has had outlier quarters since then that have exceeded New York's output, but this is the first sustained stretch of its kind for Boston.

Boston's office market has been buoyed by the coronavirus pandemic so far.

Colliers International said it shares Hunneman’s view.

“The life science and healthcare industries are the main factors driving investment into the Boston market, while New York City’s battle with the COVID-19 pandemic has hindered capital market activity in the country’s largest office market,” Hunneman Director of Research Tucker White wrote in a recent report. 

Before the coronavirus pandemic, the New York office market had been on a tear. According to Colliers, Big Apple tenants leased nearly 43M SF in 2019, the most since 2001.

But in 2020, the market is on track to hit a 20-year low. Many New York offices have been mostly vacant since March, and given the logistical challenges involved in keeping people safe, they aren’t in any rush to return. 

The health crisis is also exacerbating shortages in the Boston market that have festered for years, particularly for lab space in Cambridge. That's the home of Harvard University and the Massachusetts Institute of Technology and is considered the epicenter of the state’s life sciences industry. 

Demands for space have also ramped up as the area scrambles to find a coronavirus vaccine.

There are more than 120 companies with a presence in Massachusetts that are working on fighting the virus, which has killed more than 170,000 Americans, according to Colliers. Cambridge-based Moderna is currently running trials of an mRNA technology-based vaccine, and Colliers estimates the vacancy rate for Cambridge lab space at 4.2%.

There is a “tremendous capital appetite for Boston assets, office and lab,” writes Aaron Jodka, Colliers’ Boston-based managing director for research and client services, in an email. “It also shows the drop-off in New York. It is not uncommon to see billion-dollar transactions in Manhattan. Those dried up once COVID-19 struck.” 

Two of the largest office tower deals this year were in Boston. Mutual fund giant Fidelity Investments repurchased its 900 SF corporate headquarters at 245 Summer St. for $727.5M. There were another 13 transactions in the first half of 2020 valued at $100M or higher, including Starwood Development’s $614.3M purchase of 60 State.  

Boston also topped RCA’s rankings of U.S. office tower sales through July, recording a 13% year-over-year gain, one of only two of the top 10 markets to show an increase, the other being Washington, D.C., which saw an 8% increase. A year earlier, Boston ranked fourth

RCA is cautioning against drawing too many conclusions from Boston’s rise to the top of the office market.
"After only one full quarter of activity with the impact of COVID-19 in full swing, it is too early to discern whether changes in rankings are part of emerging trends and changes in investor preferences or merely virus-related turbulence," RCA says in a report. "For answers, we will need to pay attention to where volumes shake out in the next quarter and beyond."

CORRECTION, SEPT. 3, 5:30 P.M. ET: A previous version of this story failed to note that the office tower sales data dated back to 1998. It misstated the name of Real Capital Analytics and omitted that Boston's sales had exceeded New York's in outlying previous quarters. The story has been updated.