Landlords Providing Wiggle Room on Rents in Boston

Ashley Lane, VP of research, C&W Boston

BOSTON—The Boston and Cambridge office and lab markets are at or near record lows in terms of vacancies and some properties are seeking rents in the mid $80s to low $90s-per-square-foot. While most data continues to point to very strong markets going forward, particularly in Cambridge, there are some signs that landlords are looking to make deals in Boston and are not married to their “sticker price.” Brokerage firm Cushman & Wakefield reports that at least one property owner in the Back Bay was seeking rents of about $91-a-square-foot in the second quarter and in the Financial District, asking rents ran as high as $85-a-square-foot. However, VP of research for C&W’s Boston office Ashley Lane notes that landlords in Boston are being somewhat flexible and the brokerage firm has begun to see movement on counter proposals. She notes that while in no way does this indicate a weakening of the market, some lease transactions in the city are being finalized significantly below the lofty asking price. In fact, in its second quarter report C&W states that after a yearlong run where rents in some sections of Boston increased 30%, direct asking rents were flat in most submarkets of the City of Boston. Direct asking rent for Back Bay office space in the second quarter stood at $65.02-per-square-foot and $48.73-per-square-foot in the Financial District. Overall, the direct asking rent for the City of Boston stood at $50.48-per-square-foot. The overall office vacancy rate (including Class A and B space) in the City of Boston rose approximately 60 basis points from the first quarter to 7.6% at the end of the second quarter. A contributing factor to the higher vacancy rate in Boston was the addition of approximately 200,000 square feet at 33 Arch St., caused by Digitas’ pending relocation from the property. The firm, according to real estate sources, is in talks to lease space at the speculative mixed-use Congress Square development at 40 Water St. that is expected to be delivered in 2017. Lane says that while it is too early to say that the Boston office market is weakening, C&W has also noticed a decline in tenant demand as well in the past year. “Everybody kind of has this feeling in their gut that something’s going to happen, but nobody seems to know when or what is going to cause it,” Lane tells Globest.com. “I think that tenants are very cautious. Nobody wants to sign a lease at a super high rate and then have the market turn and be left holding the bag.” She adds that many tenants are doing one-year extensions to bide themselves time to see how the Boston market fares. Cambridge is another story with rents for both lab and office space on the rise and vacancies at historic lows. The vacancy rate for lab space in Cambridge is 2.6%, while the rate for office space is a hair lower at 2.5%.The brokerage firm says that there is a 5 to 1 demand supply ratio for space in Cambridge. The report states “for every 100,000 square feet available, there is nearly half a million square feet of pent up demand.” The tight market conditions has led to increases in rents for both office and lab space. Direct asking rents at the end of the second quarter for office space stood at $59.38-a-square-foot. Three months ago, rents for office space in Cambridge averaged $55.46-a-square-foot overall. Direct asking rent ent for lab space has skyrocketed by 20% in the last year and 10% in just the last three months. At the end of the second quarter, C&W has direct average rents for lab space in Cambridge at $68.70-a-square-foot. Construction on the first phase of the mixed-use Northpoint project by DivcoWest is expected to begin shortly on a speculative basis which will somewhat help market conditions there. Lane expects the office and lab markets in Cambridge to be strong for some time to come. The report notes that the suburban markets in Greater Boston were quiet in the second quarter. However, demand for lab space in Woburn and in the 128 Central markets are very high. The largest suburban transaction in the second quarter was Kronos vacating space at Billercia Road and Omni Way in Chelmsford. The firm will relocate into approximately 435,000 square feet at Cross Point in Lowell, MA.