Boston Office Market Struggles With Employment Growth, Occupancy

Boston’s office market is struggling to see big gains in employment as it deals with high labor costs in the post-pandemic world.

A report from Newmark shows that the unemployment rate in the area fell under three percent, marking the first time it reached those levels in almost a half-decade. However, industries have seen minimal employment growth. For example, construction leads the way at just 2.9 percent. Other sectors including information and manufacturing have seen a 3.4 percent and 1.9 percent drop in employment, respectively.

The firm attributes the problems to “tight labor conditions,” which relates to worker availability. Also, layoffs are more prevalent in certain industries such as biotech and TAMI.

“High living and business costs, and adverse demographics have constrained hiring in Greater Boston,” Newmark wrote.

One issue is demand for office jobs has been down since the pandemic. Employers in that area because of it have not committed as much office space per worker.

Vacancies have reached a historic high for the eighth straight quarter. In the three months through June, the inoccupancy and available rates were 20.7 percent and 25.4 percent, respectively,  according to data from Newmark. Negative net absorption exceeded 600,000 square feet.

Boston’s inner suburbs have struggled the most, as Route 128 loop racked up more than 2 million in negative net absorption in the past year.

Leasing activity has plummeted. In the first half of 2024, less than three million square feet have been committed to the segment. For context, the annual leasing average was 12.5 million, from 2014 to 2023. This year, the pace is only six million.

The average asking rent per square foot has dropped to $64.61 in Q2. That compares to $64.74 in the previous quarter and $65.19, a year ago.