Boston Submarkets Are a Tenant 'Merry-Go-Round'

BOSTON—Thanks to the strongest economic and job growth since the late 1990s, a Savills Studley executive says that some submarkets in Boston are like riding a popular merry-go-round, once one company leaves space, another firm hops on the rise.

“It is becoming a merry-go-round in more submarkets—not just in Kendall Square and the Back Bay, but also in Waltham and the Innovation District,” says Steve Woodworth, managing director. “The second one company jumps off a space, another one is right there to hop on.”

The brokerage firm in its recently released report on the Boston area office market reports the region's overall availability rate dropped slightly (one percentage point) to 9.0% at the end of the first quarter, which is the lowest rate since 2001. The Class A rate now stands at 8.8% and the Class B and C rate is now at 9.3%.

The overall average asking rent for the region ended the first quarter at $28.23-per-square-foot, up by 2.4% as compared to the same period in 2014. In the Class A sector, the asking rental rate averaged $35.98-per-square-foot, up by 0.6% as compared to the same period a year earlier.

The brokerage firm reports that traditional office space users such as banks, law firms and financial services companies, have shown some growth and have become a force once again here. Other key growth sectors are technology, life sciences and health care companies, while the government sector and non-profits continue to struggle, the report states.

Mark Stewart, senior vice president with Savills Studley's Boston office, tells Globest.com, “I think the market has been very strong. There are a lot of tenants that are mostly looking for more space—some would like to be more efficient if they could relocate, but I think the strength is really across the board which I think is very unusual.”

He said that he expects asking rents to increase in most markets in the Boston region. He says office properties in the Back Bay are seeing some stabilization since rates have increased there recently.

Stewart says that while he believes the Boston commercial market will remain strong, he does sense a slight slowdown in activity of late. He senses this slight downturn could be due to the limited inventory on the market, although there is considerable amount of space under construction at the Seaport and in Cambridge. Another possible reason is due to the extremely harsh winter Boston suffered through this year.

The Savills Studley report notes that submarkets such as Cambridge, Back Bay and the Innovation District present tenants with limited property options. “Tremendous growth by both startups and established life science and technology companies has pushed vacancy in Kendall Square to the 2.0% range and rents to the $80-per-square-foot range,” the report states. “Vacancy is every bit as low and rents are nearly as high as Silicon Valley's Menlo Park and Cupertino (CA). Companies have a sense of urgency in their leasing—the minute someone hops off, there's someone there to fill the seat.”

For that reason, Stewart believes that despite the strong development pipeline, available inventory will be getting tighter in Boston as the year progresses.