Cushman and Wakefield today released its first quarter MarketWatch research that tracks the performance of the commercial real estate market in Boston, Cambridge and the suburbs. First quarters tend to be statistically slow, and the first quarter of 2017 was no exception. However, there is always a story behind the numbers. And this quarter brought a few trends we’ll be watching throughout the year.
In Boston, a number of new availabilities contributed to negative absorption of over 500,000 square feet (SF). These new availabilities were not unexpected – and are solely attributable to new downtown construction. As larger tenants opt for new construction, they are leaving behind large blocks of existing space - many of which are remaining vacant for extended periods of time.
Not surprisingly, the first quarter of 2017 was more of the same in Cambridge – high rents and virtually no availability. However, Q1 did bring an inexplicable pause in demand. Over 1.0 MSF of requirements were halted in the past 8 weeks. We’re not convinced this is a trend and we certainly wouldn’t call it a slowdown, but it does appear that Cambridge conditions may be leveling off – at least in the near term.
And in the suburbs, new construction - specifically mixed-use – continues to be the headlining story. Rents are significantly lower than in Cambridge and tenants get urban amenities with suburban convenience at a fraction of Downtown/Cambridge prices.
Boston
At (563,843) SF YTD, Boston ended the first quarter in negative territory – though most new availabilities were expected.
- 200,000 SF previously occupied by Partners HealthCare came online at 1 Constitution Center in Charlestown and 500 Washington Street. The firm consolidated in 825,000 SF at Assembly Row in Somerville.
- 72,000 SF occupied by Boston Consulting Group (BCG) at 1 Beacon Street became available. BCG’s relocation into new construction in the Seaport is planned for summer 2018.
- And at 131 Dartmouth Street, 80,000 SF became available. It will be vacated by Sapient when it relocates into the newly renovated 40 Water Street later this year.
WeWork continues to make headlines in Boston. The shared space firm expanded its footprint at 31 Saint James this quarter – leasing nearly 30,000 SF of sublease space. It also inked a deal with Amazon - which will occupy about 200 desks.
Also worth noting is the 32,000 SF lease on the 6th floor of 200 Clarendon Street by another co-working firm, The Yard.
Cambridge
At 2.5% and 1.7%, respectively, both office and lab vacancies are at historical lows. This means that when space does come on the market, it’s generally been leased before its availability is made public.
- However, in the past 2 months, nearly 1.0 MSF of active Cambridge requirements have been halted. We do not think this is indicative of a slowdown, but more of a leveling off of demand that has been white hot for the better part of a decade.
- Despite the recent pullback in demand, asking rents are still high. Proposals for build-to-suit office space are quoting starting rents over $100 PSF.
- In the lab sector, proposals for existing space are starting in the low-to-mid $80s PSF NNN - with no concessions.
Suburbs
After a banner year for life science activity, the suburbs started 2017 statistically flat in both the office and R&D sectors. While a few large deals were executed in the first quarter, overall it was a quiet winter.
- Deals of note include Everbridge’s 46,000 SF lease at 500 Burlington Center and Babcock Power’s relocation from Worcester into 47,000 SF at 26 Forest Street, Marlborough.
- As suburban tenants continue to demand urban conveniences (such as walkable amenities), new construction has become the desired option for many – especially for larger companies. Currently 1.2 MSF is under construction in the suburbs with delivery dates extending into 2018. 60% of this space has already been preleased.
