Rents Rising for Low and Mid-Rise Office Tenants

JLL New England research manager Lisa Strope

BOSTON—While the top floor companies in Boston’s office towers are paying sky high rents, it is the low and mid-rise tenants that are seeing the biggest spikes in rents. Brokerage firm JLL in its 2016 Skylines report states overall office rents are now in record territory in Boston at $61.28-per-square-foot, an increase of 3% over the first quarter of 2015. JLL states that leasing momentum and rent growth have occurred mainly in the low to mid-rise floors of Boston’s top tier office buildings. Low rise (floors 1-10) have seen asking rents increase 7.6% in the past year, while mid-rise (floors 10-20) space occupiers have seen asking rents rise 6.8% from 2015. “Improving economic conditions continue to make Boston a highly sought after destination for tenants,” says Lisa Strope, JLL New England research manager. She adds that tenant demand runs the gamut from start-ups to mid-sized growth firms to large corporations. All have one thing in common—they want to be close to Boston’s plentiful talent base. “Significant recent population growth has propelled the city into a new transformative phase with retail, residential and infrastructure development reaching new multi-decade highs,” Strope says. Cushman & Wakefield in a recently released report stated that asking rents in the Back Bay were trending as high as $91-a-square-foot in the second quarter and in the Financial District, asking rents ran as high as $85-a-square-foot. C&W reports the 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 office space in the City of Boston stood at $50.48-per-square-foot at the end of the second quarter. The amount of investment in top tier office properties in Boston fell last year, but not nearly as much as in other major cities in the United States, JLL reports. The problem Boston is having is not necessarily a lack of investor appetite for office product here, but simply a case of supply and demand. “Boston remains one of the top targets for domestic and international capital,” says Frank Petz, managing director of JLL Capital Markets in Boston. “However, while supply of investment capital is at an all-time high, supply of investment product has been limited. As a result, few investors, other than those harvesting gains, are finding reasons to sell here locally.” Petz adds that the downtown office market is the most competitive and foreign capital investors are becoming leading players for these prime assets. JLL calculates that foreign investors currently own more than 14% of Boston’s skyline properties. Canadian and German investors make up more than 60% of that total. In May, Blackstone sold 175 Federal St. in Boston to German banking firm Deka Immobilien GmbH for $139 million. A month earlier, Skanska USA sold its 101 Seaport Blvd. office building for $452 million to German real estate investment management firm Union Investment Real Estate GmbH.