Boston Office Vacancies Fall Below Pre-Recession Levels

BOSTON—Despite a drop in leasing velocity in 2014, the office vacancy rate for the Boston region fell below its pre-recession levels last year, according to a report released by brokerage firm Savills Studley.

The region's office vacancy rate fell 0.4 percentage points from 9.5% at the end of 2013 to 9.1% at the end of 2014. The Class A vacancy rate in the region declined more sharply for the same time period, falling from 9.9% to 8.8%. The Route 495 corridor saw its vacancy rate slide 1.3 percentage points to 16.2%, while the Route 128 corridor saw its vacancy rate fall to 9.8%, the first time since 2001 that its rate fell below 10%, the Savills Studley report states.

The overall average asking rent for the region ended 2014 at $27.70 per-square-foot, up by 0.9% year-on-year. In the Class A sector, the rate averaged $35.71-per-square-foot at year's end, up by 1.4% year-on-year.

Last year, office leasing totaled 23.7 million square feet, down 5.4% from the 26.8 million square feet leased in 2013. Savills Studley states, however, 2014 leasing velocity was on target with the market's long-term average of 23.7 million square feet.

“Compared to the two prior business cycles the Boston region is doing a better job of fostering new business formation and even more critically—retaining—expanding companies,” says Savills Studley senior vice president Mark Stewart.

The brokerage firm states “surging investment in the tech and life sciences sectors is supporting strong hiring and steady space absorption across a broader cross-section of the Boston office market.” The report continues, “Foreign and domestic investors are aggressively pursuing office assets in the Boston region, pushing pricing higher.”

Savills Studley states that the Boston region's continued growth depends upon the continued demand by investors and venture capitalists to garner high yields. “If risk-aversion rebounds, the capital flows that are feeding into R&D and the investment sector could both contract. For now though, with new construction activity still very limited, and demand showing little signs of dropping off, tenants will need to start their search early and cast a wide net in their pursuit of space,” the report notes.