Tightest Office Market In The Country Starting To Lose Business?
The Cambridge-Boston office market is the tightest in the country. Its practically zero-vacancy climate is causing the life science industry to elbow out technology and startup companies, leaving subleasing as the only option to find space.
Cambridge office rents averaged $65.26/SF in Q4 2016 with vacancy at 3.8%, according to CBRE. Some companies, like SAP and the Brattle Group, have been forced to leave due to the extreme lack of availability while pharmaceutical companies like Shire rush to take lab space before it even hits the market. Landlords looking to retain credit tenants like those in life science have prioritized building out lab spaces. If rents remain high and supply low, brokers anticipate non-life science companies will look elsewhere.
“What has been a tech and startup culture is being pushed out by Big Pharma, which is a great story for Boston,” said Aaron Jodka, director of research at Colliers International.
While Kendall Square is heralded as the most innovative square mile on the planet, both startups and more established brands are looking across the river for more space and better pricing. Companies like Amazon and Facebook have been shown sites in the Financial District and Seaport. Cities along the Route 128 Corridor have also lured companies with lower rents while still being easily accessible to central Boston.
Microsoft announced last year that it would move 300 employees to Burlington over the course of two years and sublease 125k SF of its Kendall Square offices, adding to what Colliers International calls a sublease phenomenon. The direct vacancy rate in the 11.3M SF office market is at 2.2% — the lowest seen since the tech boom in late 2000. However, there is twice as much subleased space on the market as direct space, causing the real estate company to peg the local office vacancy rate at 6%. Microsoft’s lease runs through 2021, so while it might be too early to gauge what this sublease movement signals, Jodka said, “When it starts to tick up, it implies there’s an imbalance somewhere.”
Nevertheless, he said the variety of innovative industries in the market point to continued strength. Projects like Volpe Transportation Center and North Point are potential relief valves — MIT will add 3.5M SF of office and lab space to Cambridge's extraordinarily limited supply between Volpe and its Kendall Square Initiative — but years away, rendering subleasing as the best way for new companies to get a foot into Cambridge.
“We want to make sure it’s just the scenario of one company going away, and it creates an opportunity for another to move right in,” Jodka said.