Demand for office space in Boston appears to be on the rise.
The number of tenants actively looking for office space in Boston reached 460 last month, according to office leasing platform VTS, the highest level since June 2021.
Those tenants have requirements totaling 6.5M SF, an 8% increase from one month earlier, according to VTS. The 824K SF of new tenant requirements that entered the market in May was 50% above the monthly average from 2021 to 2023.
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"The encouraging thing about what we're seeing in Boston is we are seeing a fair amount of small-tenant demand growth," VTS Vice President of Investor Research Max Saia said.
"We have found that more substantial then sustained recoveries occur in a market when there's a lot of demand coming from that small to midsized range, and when that happens, it's inevitable that at some point, the large tenants are going to show up."
New demand has been driven primarily by smaller tenants in the technology, advertising, media and information sectors. TAMI demand increased to 226K SF in April, a 48% increase month-over-month and 172% higher than the monthly average in 2023, according to VTS.
"It's an encouraging sign nonetheless because if you look at the gap of every industry versus its pre-Covid levels of demand, technology is still by far the furthest away from that," Saia told Bisnow.
Saia said that there were no particular drivers for why tech tenants were emerging from the market other than a push from employers to return to the office.
"You don't necessarily need technology to get all the way back to where it was pre-Covid, but you need to see a much bigger improvement versus where we're at ... and so we're potentially in the early innings of that," Saia added.
Financial, insurance, real estate and legal tenants saw an uptick in new demand from 102K SF in April to 263K SF in May.
Saia said that the Back Bay and Fenway saw the highest amount of tenant activity. The Seaport saw a decrease, but that was due to low availability across the submarket.
Back Bay and Fenway saw the volume of Class-A proposals increase 89% in the last 36 months, with starting rents increasing 3%.
"That is a submarket that has been really quiet for most of the past year. But over the last three to four months, we've really seen a notable uptick there," Saia said. "It was just that the levels of demand were so low that it was kind of dragging on that as well. But now that we're finally seeing some decent demand growth, it's really filtered into that submarket in a positive way."
At the beginning of the year, the office sector continued to see low demand, but many experts were optimistic that vacancy in the market would level off this year.
With this bump in new tenants on the market, Saia expects it to translate to new leasing activity year-over-year as well.
"We expect demand to be up year-over-year," Saia said. "That's obviously going to spill into leasing activity this year, and we expect overall leasing activity to be up year-over-year as well."
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