Low-Rise Space Has Upper Hand in Boston Office

BOSTON—The upper floors of office towers may be able to command premium rents in New York City, but in Boston, low-rise space has been in greater demand. That's the counter-intuitive conclusion to be drawn from a new Cushman & Wakefield report on leasing trends in the Boston market—counter-intuitive because earlier in the recovery, low-rise space went begging to a greater extent than towers of 20 stories or more.

“Traditionally, high-rise product was quickly absorbed from the market by stalwart tenants in the financial and legal services sectors who were willing to a pay a premium for the city's best views,” writes Sharon Joyce, Boston research director at C&W, in a blog posting. “Low-rise space, which was typically used to house back office operations of financial services firms, moved more slowly from the market, keeping vacancy levels comparatively elevated for longer periods of time.

Since 2011, though, “the opposite has held true,” writes Joyce. Four years ago, low-rise vacancy was 17.7%, but since then has declined 770 basis points to 10.0%. Conversely, high-rise vacancy at the beginning of '11 was 10.8% but has climbed 40 bps to close 2014 at 11.2%.

Joyce attributes this to the new economy of the Boston CBD. Ten years ago, the technology sector accounted for just 6% of class A deals, compared to financial services' 40.5% share of the space leased. Last year, tech companies accounted for 19.2% of new class A deals signed in Boston, while financial services tenants signed for 18.4% of the space.

Further, the major tech deals signed last year found the tenants moving into Boston's CBD from other submarkets. For example, software manufacturer Acquia signed for 75,000 square feet of low-rise space at 53 State St., while doubling in size in its move from suburban Burlington. By contrast, the major financial services deals were in-market relocations.