Boston Commercial Market Strong Heading Into 2015

BOSTON—The greater Boston office market is entering 2015 on a very high note with vacancies falling in all markets and intense investment activity, including a number of significant recapitalization deals, according to brokerage firm Avison Young.

The brokerage firm's “Fourth Quarter 2014 Greater Boston Office Market Report” states that the urban Boston market saw its office vacancy rate plunge to a six-year low of 9.3% and absorption levels there reaching a 12-year high.

“Continued positive absorption in urban Boston by both traditional occupants and waves of technology and creative firms has worked to deplete space from all quality tranches,” says Brendan Carroll, vice president, research for Avison Young in Boston. “Vacancy rates decreased across all building star levels with demand present across the quality spectrum.”

Avison Young notes that the construction pipeline now totals 3.1 million square feet and includes the 425,000-sqquare-foot 888 Boylston St. project being developed by Boston Properties whose major project in North Station is also set to be underway next quarter. Also, Federal Realty Investment Trust broke ground on Partners HealthCare's new 800,000-square-foot headquarters at Assembly Row in early December.

Outside of Boston, the 128 Belt has experienced a record 15 quarters of positive absorption, which has increased occupancy levels by 3.9 million square feet, the report states. Absorption of 401,000 square feet in the fourth quarter of 2014 dipped vacancy there to 11.1%—the lowest level seen in 12 years.

“The 128 Belt is experiencing healthy fundamentals. The submarket hosts 813,000 square feet of build-to-suit projects underway for TripAdvisor, Vistaprint and Wolverine Worldwide,” says Avison Young principal Jack Kerrigan.

In terms of capital investment, Michael Smith, Avison Young principal and managing director of the firm's Boston office, says,“Taking note of the positive fundamentals of greater Boston real estate, investors have now allocated more than $1,100 per-square-foot for an asset at One Memorial Drive in Cambridge, a level traditionally reserved in the United States for only Manhattan core properties. This transaction is a record high in greater Boston for office assets larger than 100,000 square feet.”