Cresa: Downtown Boston is 24-36 Months From Market Peak

BOSTON—Commercial brokerage firm Cresa reports that commercial markets in and around Boston, as well as Cambridge, are anything but tenant's markets and while strong, some still have a ways to go before they reach peak conditions.

In its recently released second quarter market report, Cresa says of Downtown Boston, "Today's tenants indeed face headwinds due to strong demand for office space across all submarkets and building classes. Cresa believes we are still 24-36 months from market peak.”

Robust office space absorption during the second half of 2014, combined with few space options and a bullish attitude by office landlords led to a sharp spike in rents in Downtown Boston. Class A average asking rents rose more than 6% in the first half of 2015, while Class B average asking rents soared 17% in the North Station and Seaport districts and 13% in the Financial District.

While there are new office projects in development, most are already spoken for. However, two speculative projects are underway at the Seaport—Skanska USA's 400,000-square-foot 121 Seaport Blvd., and Tishman Speyer's 370,000-square-foot Pier 4 building.

“As these developers incur a certain level of risk, tenants will benefit from the addition of new inventory amid the perfect storm of dwindling options and consistently strong demand,” Cresa states in its mid-year tenant report for Downtown Boston.

The brokerage firm states there are six companies searching for 100,000 square feet of space or more in Downtown Boston: BNY Mellon, 400,000 square feet; Microsoft, 300,000 square feet; Putnam Investments, 275,000 square feet; DigitasLBi, 200,000 square feet; Cengage Learning, 100,000 square feet and IBM, 100,000 square feet.

Another extremely tight office market at the moment is Cambridge, which Cresa describes as “one of the world's epicenters for innovation and invention.” Cresa states, “Strong organic growth, combined with inward migration of notable, out-of-market tenants, has driven inventory to an all-time low. For users looking for more than 20,000 square feet in East Cambridge today, there are but three viable options. For the most part, any space scheduled to come back to the market in the next 12-24 months has already bee spoken for by one of the usual suspects.”

The office vacancy rate in Kendall Square at the end of the second quarter was just 2.7%, Lechmere's vacancy rate for the second quarter stood at 3.5%, Mid Cambridge boasted a paltry 2.5% rate and Alewife/West Cambridge district's rate was 8.3%. Companies looking for more than 100,000 square feet of space in the Cambridge office market include Akamai Technologies, which is looking for 750,000 square feet and pharmaceutical firm Biogen, which is on the market for 350,000 square feet of space, according to the Cresa report.

If it is possible, the Cambridge laboratory market is even tighter than the office market. The overall Cambridge laboratory market's vacancy rate was 4.9% at the end of the second quarter. The vacancy rate in the very popular Kendall Square is a miniscule 0.3%.

Cresa states in its mid-year report, “Between large-scale growth from tenants that already have a significant footprint in Cambridge and the continued influx of tenants looking to establish a market presence, any space that becomes available is typically committed before any marketing efforts are even necessary. The inventory in Cambridge is certainly growing but all of this leasing activity is having very little impact on availability.”

The brokerage firm predicts that market conditions will remain tight for some time. Major tenants in the market for lab space include: Biogen, 300,000 square feet and Momenta Pharmaceuticals, 160,000 square feet.