Greater Boston Office Market
Q1 2023 OFFICE MARKET OVERVIEW
BOSTON, CAMBRIDGE & SUBURBS
The Boston office market continued to flounder in Q1 2023, with availability rates finishing the quarter above 19%. Net absorption was negative by more than 1.1 million SF last quarter and more than 3 million SF over the last 12 months. Vacancies and sublet rates both increased by more than 100 basis points over the last year. After holding up remarkably well for much of the pandemic, asking rents have also started to soften. Vacancy rates are highest in Boston and the suburbs, while sublet rates are highest in Cambridge. With its heavy exposure to tech and biotech, Cambridge hit some hiccups as funding dried up for these industries over the last year. Although flight-to-quality has occurred throughout the pandemic, absorption losses were relatively even between Class A and Class B space last quarter.
So far, return-to-office mandates have been largely ineffective, with workers holding firm in the tight labor market. Boston ranks as one of the least successful metros in the country in terms of employees returning to the office. Per Scoop, 54% of local companies allow full flexibility for all employees, the ninth most flexible metro in the country. A contributing factor to Boston’s low return-to-office rate is its exposure to the tech industry, which leads all sectors with 80% of companies offering fully flexible arrangements for all employees. Return-to-office trends also vary greatly by company size. Organizations with fewer than 500 employees allow for fully flexible arrangements 65% of the time, while 48% of companies with more than 500 employees have employees back in-office full time.
Rising interest rates, layoffs from major firms across tech and other industries, and banking industry struggles have added to the now typical pandemic-era pressures on the office market. Flight-to-quality trends have taken hold throughout the pandemic, and this dynamic may continue to create winners and losers in the office market. Several of the largest offices leases across the metro in recent quarters were for space in pipeline projects, which were a mixed-bag for the market’s overall fundamentals. Some tenants will expand their overall footprints in the new towers, but most plan to consolidate and downsize. As this flight-to-quality moves down the market, underperforming properties should continue to be targeted for conversion, which should alleviate some of the pressure on the office market. Nearly as much office space is underway or permitted for conversion as is under construction.