On the Heels of Boston's Rapid Rent Growth

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BOSTON-Where are we in the recovery? Direct asking rents dropped almost 30% in Greater Boston during the Great Recession and have recovered 11% thus far. In the CBD, rents dropped 32% and have recovered 21%, indicating that that while the city is recovering at a quicker pace, rents remain off peak.  

Recent evidence suggests that we may begin to see acceleration in rent growth and that we may be at a tipping point in Boston's recovery cycle.  Let's look at the facts:

Office-using Employment: We're Back

Greater Boston shed over 100,000 jobs in the Great Recession. As of a year ago, we officially entered growth mode at the metro level and since have added another 50,000 jobs above previous peak levels (see the red line).   

The same hasn't been true for office using jobs. The pace of recovery has been slower. I am happy to report, however, that our most recent data indicates that we have recovered all lost office-using jobs.  It took an additional year, but office-using employment is now officially in growth mode. This is in large parts due to the growth exhibited in the high tech and life science sectors.

Recent Job Data: A Shift in Momentum

Greater Boston employment growth was strong in January and then tapered off dramatically in the spring. A significant bounce occurred in July and we have, in the most recent two months where data is available, created 50 percent of full year new jobs. While two months do not make a trend, this is a step in the right direction. 

Vacancy: Things are Getting Tight

The vacancy rates for the CBD and the suburbs continue to decline, and are also nearing levels last seen in 2008. Some submarkets are exhibiting vacancy rates that are lower than long run average. At these levels, firms may have a difficult time finding space once they overlay their specific requirements.

Development: No Spec Development Yet                                                        

The development cycle is well underway, but it remains in large part a built-to-suit development cycle. And at that, most of it is not delivering for another 12-24 months. By 2015-2016 some of the build to suit projects will be delivered, and a few notable large blocks of space may come to market if they aren't leased in advance of tenants' move-out. The firms in this category include PriceWaterhouseCoopers  and Goodwin Procter. State Street Bank will have left some space in the Boston market as well. The net of these move-outs equals a large tower coming to market. But that won't occur for another few years. Herein is another reason I feel that rents could rise in the next 12-24 months.

Jones Lang LaSalle's third quarter 2013 data shows direct asking rent growth of 3.9% over second quarter numbers. This is the second consecutive quarter with high quarterly rent growth of nearly 4%. Could we be on the cusp of a rapid rent growth period?

Lori Mabardi is research director at Jones Lang LaSalle. The views expressed in this column are the author's own.

To see charts on the subject, see below.

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