Best Office Market Since Dot.com Boom

BOSTON—While their figures did not agree in all cases, brokerage firms DTZ and Transwestern |RBJ concur that office and R&D availabilities in Greater Boston are extremely tight. In fact, the two commercial real estate firms both say that commercial real estate space absorption has not been this good in 15 years.

“Greater Boston has closed a historic quarter in terms of absorption,” says Transwestern Northeast research director Chase Bourdelaise. “And this quarter was not a fluke, as we're in the midst of a streak of nine consecutive positive quarters. The strong results have been seen across the region, with every major submarket boasting a level of activity not seen in many years, if ever. ”

The 2 million square feet of office space absorbed during the second quarter of this year was the region's largest quarterly tally since the dot-com boom in 2000, Transwestern reports.

Glenn Verrette, executive managing director of DTZ's Boston office, says,  “The market is very strong, very fluid right now. You have single-digit vacancy in several of Boston's markets and submarkets.”

He notes that the Financial District and Back Bay districts both are sporting vacancy rates below 10%. DTZ reports the vacancy rate in the Back Bay District at the end of the second quarter was 8.5%, while the Financial District posted a 9.4% vacancy rate at the end of the second quarter of this year.

“Cambridge is probably the hottest and fastest moving office market in the country,” Verrette says.

Transwestern reports that many submarkets are experiencing strong demand, which is pushing asking rents higher. Office space is scarce in Cambridge where availability hit an all-time low of 5.9% in the second quarter, and Cambridge's vacancy rate dropped to a paltry 5.8%. DTZ calculates the second quarter 2015 vacancy rate in Cambridge at 8.1%. However, the overall vacancy rate was below 5% in both the A and B office markets in Cambridge.

Office rents continue to rise steadily—most notably in the Alewife/West Cambridge and Mass Ave. corridors, both climbing over 13% since the beginning of 2015, DTZ states in its report.

In East Cambridge Class A asking lease rates topped $70-per-square-foot. Transwestern says that the East Cambridge area has just three blocks of available space exceeding 20,000 square feet.

The Route 128 submarkets also posted a strong second quarter combining for 644,000 square feet of positive absorption. The 2.4 million square feet absorbed in the past year marks the most in any 12-month period since 2000 for those submarkets.

Another highlight of the Transwestern report was that the Interstate 495 submarkets posted 227,000 square feet of positive absorption in the second quarter, while Class A asking lease rates hit the highest levels since 2008 at $21.36-per-square-foot there.

DTZ states that the strong markets are putting upward pressure on rents throughout the Greater Boston area. For example, a handful of premium tower buildings in Boston are now securing rents well into the $90s-per-square-foot.

Real estate investment is also very strong in Greater Boston both in terms of property sales and development. In the past year nearly 25% of Boston's office inventory has traded hands in the past 12 months, according to DTZ.

According to the Boston Redevelopment Authority, there are currently 68 projects currently under construction in Greater Boston totaling 14 million square feet of new development valued at approximately $7 billion in total development costs.

“There's development occurring in all sectors of the market,” Verrette says. “Whether it is office, biopharma, residential, hotel, you name it you are seeing a real strong development pipeline.

He adds that more than 50% of the space in office developments now under construction are pre-leased, which will lead to some speculative office development in the Downtown and perhaps in the Seaport district in the future.