Boston Office Rents Approaching Record Highs

Ashley Lane, VP of research, C&W Boston

BOSTON—Boston and Cambridge’s high office rents and low vacancies are beginning to give some tenants pause and prompting them to at least consider leasing less costly non-trophy space. In its MarketWatch report on the state of Boston’s commercial office market in the first quarter, Cushman & Wakefield states that some available trophy office space in the city hit the $85-a-square-foot threshold. Ashley Lane , VP of research for C&W in Boston, says that the brokerage firm is now seeing some firms mulling not only considering trading their corporate nameplate on a prestigious address for more reasonably priced space, but even perhaps consolidating their office footprints in the process. Lane tells Globest.com that one tenant in trophy space in the Financial District told the brokerage firm that rents have reached the “inflection point” and it needs to re-evaluate its office space needs and location. She says some tenants are at least beginning to evaluate their needs based on the high cost of office space in Boston as well as office-lab space in Cambridge. “We are seeing tenants say, ‘Alright, enough is enough, it’s not worth it. Do we need to re-think how we lay out our space. Could we go to a low rise?’ People have to explore all their options, or pay premium rates,” she says. Lane predicts that rents will increase in 2016 and that at least at the moment, while the one unnamed tenant has determined prices are too high, the brokerage community has yet to sense that rents in Boston or Cambridge have reached the “inflection point” for most businesses there. The C&W executive predicted at the end of 2015 that rents would rise this year. She notes that some tenants are already beginning to explore the outer suburbs because of the cost and the tightness of the Cambridge office and lab markets. C&W puts the existing laboratory vacancy rate in Cambridge at just 1.1% and the office vacancy rate there at 4.8%. The vacancy rate for office space in the City of Boston at the end of the first quarter was 7.0%. A closer look at the numbers shows that the overall asking rent for available space in Boston at the end of the first quarter was $47.14-a-square-foot. However, Cushman reports that rents have soared to as high as $85-a-square-foot in the Financial District, $70-a-square-foot in the Back Bay and $61-a-square-foot in the Seaport District. Rents in Cambridge for available office space in the first quarter of this year averaged $55.46-a-square-foot overall. However, office rents in Cambridge so far this year have ranged from as low as $30-a-square-foot to as high as $82-a-square-foot. Lab space rents in Cambridge rose 6.5% in the first quarter to $62.74-a-square-foot, a 6.5% increase from the same period last year. Office rents in Alweife/West Cambridge area in the first quarter ranged from $30-a-square-foot to $47-a-square-foot, in East Cambridge the rents ranged from $50-a-square-foot to $82-a-square-foot, in the Mass. Ave. corridor the rental range was from $37-a-square-foot to $55-a-square-foot in the first quarter. Lab space in those three markets ranged from as low as $29-a-square-foot to as high as $75-a-square-foot in the Mass Ave. corridor. Lane says that some firms are now at least considering the outlying suburbs where rents are averaging in the low to mid $30s-per-square-foot in some of the popular markets. She was quick to point out that C&W does not believe that there will be a mass exodus of companies leaving Boston or Cambridge for the outlying suburbs. In fact, the migration from urban to suburban cannot even be characterized as a trend at the moment. However, because of the tight conditions and the rising rents in Boston and Cambridge, “nothing is off the table” for those firms that are now studying their space needs. Lane blames the rise in rents to the tight market, strong demand, as well as recent property trades in Downtown Boston that have led to the new ownership charging higher rents. “When we look at underwriting assumptions, projected market rents are increasing infinitely,” Lane says. “So if you buy a building with these underwriting assumptions, you have to charge these rents to justify the purchase.”