Boston office market loses momentum as sublease availability starts to rise again
Sublease availability in the Boston market has started to rise again after several quarters of decline, a worrying sign for the market as macroeconomic headwinds have businesses wondering how much space they really need.
In the second quarter, sublease availability in Boston proper increased by more than 500,000 square feet, according to the CBRE bureau’s quarterly report, which indicates that this is the first quarter that the sublease rate has increased since the first quarter of 2021.
In Greater Boston, sublease availability increased from 5.5 million square feet in the first quarter to 6.3 million square feet in the last quarter, according to a separate report from Colliers. The Colliers report also found the city saw 522,000 square feet of overall negative net absorption, more than double the occupancy loss from the first quarter, and the vacancy rate jumped to 15.6. %.
“I was hoping we would be able to continue the momentum of the recovery, but it looks like we lost some of that momentum in the second quarter of the year,” said Jeff Myers, chief research officer. at Colliers.
Due to market uncertainty, many companies have lost space to reassess their needs and look into hybrid working models, several leasing brokers said. bisnow.
“For the past couple of years, real estate organizations and businesses evaluating their property have focused on this return to work date and this return to work strategy,” said Lauren Lipsomb, senior vice president of CBRE. “The problem is you have these issues now, which are coupled with macroeconomic uncertainty, inflation and different trade directions that create a bigger problem than just getting back to work.”
Last week, Bose announced that it plans to close his office at Boston Landing in Brighton. The company has listed nearly 130,000 square feet at 80 Guest St. as available for sublease, according to the Boston Business Journal. SimpliSafe also lists 117K SF in the sublet market, the majority being his former office which he left last year, according to BBJ.
This week, Facebook put the brakes on plans to expand 250K SF in Boston to redesign its office for a hybrid work environment, the Boston Globe reported. Other tech companies like Akamai Technologies and Wayfair are considering subletting some of their space, according to the Globe.
“We’ve seen an increase in sublease supply, but we’ve also seen quality sublease space being leased,” Lipscomb said. “The sublease space that’s on the market is more of an older base space that will be less likely to be rented out.”
This subletting trend mirrors what is happening in the office market, as tenants gobble up Class A space in the city and leave behind Class B buildings. According to the Colliers report, asking rents Class B in Boston fell 11% last quarter.
Courtesy of CBRE
Sublease availability increased for the first time since it began to decline in the first quarter of 2021.
The Boston office market saw the nation’s second-highest occupancy loss last quarter, according to JLL’s second quarter national office report, which found that Greater Boston’s negative net uptake, including sublets, was 1.2 million square feet, behind only New York’s 3.4 million square feet. .
Cambridge and suburban markets performed better than Boston in terms of net absorption, with 249,000 square feet of positive net absorption combined, according to Colliers. The overall vacancy rate for these markets sits at 16.1%, down from the prior quarter, a trend that Colliers attributes to office-to-lab conversions that have removed vacant space.
Myers said this trend may not last as market uncertainty persists over the next half year.
“If you’re in Cambridge in the suburbs, you’re not immune to what’s happening on a macro level with interest rates and stock market valuations and the work-from-home factors that different companies aren’t at. shelter.” said Myers. “But I think Boston has had worse so far.”
There is still reason to be optimistic about the future of office leasing in the city, as major deals, like Bain & Co. pre-lease of 220K SF in the new development at 350 Boylston Street have been signed. Goulston & Storrs is apparently in talks to lease 100K SF at One Post Office Square, and Amazon completed its 17-story, 525K SF office building in the seaport.
“The quantity of [sublease] space in the market is going to come and go, and it’s not like what we’ve had in previous cycles where you have an onslaught,” said Ben Heller, downtown Boston team manager from JLL. “The dot-com crisis has flooded the market. Several years after that, the financial crisis flooded the market with sublets, and Covid flooded the market with sublets. I think it’s now in a sort of normalization phase.
Matt Daniels, brokerage manager for JLL’s suburban leasing team in Boston, said his team is still actively conducting visits for tenants looking for new space. And he said having a vacancy in the market can be a good thing because it allows businesses to grow.
“There’s good activity around a lot of markets, and business is coming through,” Daniels said. “It’s almost kind of healthy that they can continue to grow here and not have to look to another market.”