'The Bleeding Has Stopped': Boston Leasing Velocity Hits Highest Level Since 2019

Following several major deals in the last quarter, Boston's office market may be on the rebound.

Leasing velocity picked up in downtown Boston last quarter, according to reports from CBRE and Hunneman. CBRE’s report says the 1.9M SF of leasing velocity represented the strongest quarter since 2019.

The uptick in leasing was due to several deals over 100K SF, including Hasbro and KKR & Co. relocating to downtown Boston. BNY and Datadog also held on to notable chunks of downtown space.

However, as tenants flock to the shiny, new buildings in the central business district, there is worry about the space they leave behind. Greater Boston's vacancy rate rose to 20.4% by the end of the third quarter, up from 19.6% the previous quarter, according to Boston brokerage firm Hunneman.

Although Boston’s office sector still hasn’t fully recovered from the pandemic, Hunneman Director of Research and Strategy Mark Fallon said momentum is starting to pick up across the market.

"There's a little wind in the sails," Fallon said. "I'm not saying it's transformative for the market and there'd be millions of square feet of leasing, but the turnaround has to start somewhere, and I think it's a good point for it to begin."

The largest deal of the quarter was Hasbro's 265K SF sublease in September at WS Development's 400 Summer St. The toymaker moved north from Pawtucket, Rhode Island, which it called home for more than a century.

The state's Economic Assistance Coordinating Council offered Hasbro a tax break of up to $14M as long as the toymaker meets hiring requirements, the Boston Business Journal reported.

Deals like Hasbro's decreased sublease availability for the eighth consecutive quarter, to 3.8%, according to CBRE. Fallon said the steady drop in sublease availability could be a signal that the market is poised for a turnaround.

"I think that's one of the first indicators that potentially we've reached an inflection point," Fallon said. "It just sort of strikes me that the bleeding has stopped."

Roughly 55% of the 1.9M SF of leases signed were in properties within Boston's CBD, according to CBRE. These leases included KKR's 132K SF relocation to International Place from 20 Guest St. in Brighton, Schneider Electric's 74K SF lease at Winthrop Center, and ServiceNow's 54K SF sublease at 100 Causeway St.

Renewals and expansions last quarter made up 33.5% of all leasing activity, up from 17.6% in the prior quarter, according to CBRE.

The largest renewal was BNY's 205K SF deal at Nuveen and La Caisse's One Boston Place, followed by Datadog's 125K SF renewal and expansion at Oxford Properties' 225 Franklin St.

Hunneman Managing Principal Peter Evans said he expects to see this momentum continue, especially with the city's trophy buildings.

Trophy assets were the big winners last quarter, with all of the major leases signed in such buildings. These included deals in One Boston Place, 400 Summer St., Winthrop Center, 200 Clarendon and International Place.

"To create an environment that is a magnet, not a mandate, I think part of that is driving this relocation and this resurgence," Evans said.

Unlike the dot-com era that drove tech leases and the life sciences boom in the early 2020s fueled by lab tenants, the market is being driven by large commitments from tenants across various sectors, Evans said.

"You can't point to one specific industry that has been pushing the market," Evans said. "That, to me, is a little bit of a shift."

Demand is expected to continue to flow to newly built assets, especially as office construction has all but stopped and the last two major projects have delivered, Evans said.

Hines' South Station Tower secured another lease this quarter: an 11K SF commitment from hedge fund manager Citadel. The new lease brings the building’s occupancy to more than 100K SF. Now that construction has been completed on the tower, the building is more attractive to potential tenants, Evans said.

"The access to the building has improved. I think that that's what's attracting tenants to that building,” he said.

JPMorgan Chase is reportedly in talks to consolidate its Boston operations to around 250K SF at the 41-story building, The Boston Globe reported earlier this month.

Several significant blocks of space came back online last quarter, with more anticipated to be shed, which could lead vacancy to further rise.

There were other notable vacancies in Q3. Research company Forrester slashed roughly 80K SF off its lease at The Bulfinch Cos. and Healthpeak Properties' 60 Acorn Park Drive in Cambridge, Education Development Center listed 40K SF for sublease at 300 Fifth Ave in Waltham, and Optum exited 150K SF at 1325 Boylston St. in Boston's Fenway neighborhood, according to Hunneman.

Hines' South Station Tower and Boston Global Investors' 10 World Trade also delivered in the third quarter, adding 840K SF of available space to the market.

If JPMorgan does sign a lease, it would leave behind hundreds of thousands of square feet it occupies across Boston, including its wealth management office at 50 Rose Wharf, Evans said.

"What's left behind in the wake of those relocations is an interesting trend to follow," Evans said. "How do they reposition that asset?"