The Current Greater Boston Office Market and How to Prepare for 2024
All eyes are on the office market, where an increasing number of vacancies are emerging as many companies opt to reduce their office space when leases expire. Over the three years since the pandemic began in 2020, businesses are still working on establishing their hybrid work models. Although each company tailors its approach based on its needs, work methods, and culture, a significant portion of them now provide at least one day of remote work per week.
Where do we stand now in the Greater Boston office market?
In the Greater Boston office market, vacancy rates are on the rise, with Class A trophy buildings being the least affected due to the flight to quality trend. Office rents are declining across the board due to decreased activity and the availability of subleases at discounted rates. Some tenants are seizing the opportunity to move to better-quality spaces at the same or lower rate. However, not all landlords can offer discounts due to high construction costs, building financing, etc. So, while terms are more favorable for tenants, do not expect flash sale price.
Currently, around 18 percent, or 50 million square feet, of office space is vacant in Greater Boston, and rents have dropped approximately $2-$5 per square foot compared to a year ago.
As a tenant in today’s market, the situation is in your favor. Should you have an upcoming lease in the next 15 months, it is critical to re-evaluate your office space strategy due to the impact of hybrid work, shifting market conditions, and your future growth expectations.
In preparation for your next lease renewal, you should discuss with your broker the following:
Evaluate Your Real Estate Strategy:
- Assess Your Space Needs: Assess the influence of remote work on your space requirements by allocating square footage according to activity-based work. Identify essential in-office tasks and customize the workspace to accommodate these specific needs.
- Consider Location: Evaluate your employees’ commuting distances and the economic conditions of different submarkets to determine if relocating to a new geographic area could provide cost savings and reduce commute times for your staff that are most frequently in the office. • Review Lease Terms: Make sure that your lease terms are in sync with your long-term strategy
- Review Lease Terms: Make sure that your lease terms are in sync with your long-term strategy, providing the necessary flexibility when required. For the first time in many years, Landlords are open to shorter-term leases if needed.
Market Opportunities:
- Subleasing: Given the abundance of subleases in the current market, many are being offered at substantial discounts to remain competitive. For instance, a sublease on Winter Street in Waltham, MA, is available at $19 per square foot, in contrast to the $46 per square foot rate for a direct lease. These subleases frequently feature shorter lease terms, reduced rents, and sometimes even come furnished. If you can adapt to different this presents a valuable opportunity.
- Incentives: In the last two years, 6.5M SF of Class A office buildings in Greater Boston have undergone redevelopment, impacting available options for tenants. With declining demand for life science space, owners now offer incentives like free or discounted rent to attract tenants.
- Relocation: Consider adjacent submarkets if commute times can be reduced by looking at secondary markets with cheaper rents (For example, Natick vs. Wellesley or Canton vs. Newton). These secondary markets typically offer comparable quality buildings but at lower rents. A recent example of this was Ceaco’s decision to move its headquarters from Newton to Canton. This relocation led to substantial annual savings of around $7 per square foot and reduced employee commute times by an average of 15 minutes. Additionally, the selected building provides sufficient space to accommodate potential future expansion requirements.
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Work with a Tenant-Rep Broker: Tenant rep brokers have the market expertise to assist you in your property search, negotiate favorable terms, analyze leases, help with space planning, provide comparative analysis, and access off-market opportunities. Relying on a broker comes at no cost to you (Landlord pays commissions), but you are provided with critical market knowledge and a real estate strategy that can greatly impact your bottom line and business opportunities.
Have questions? Our seasoned brokers are prepared to help you navigate these paths and make well-informed decisions. Get in touch with us today so we can help you optimize the potential of your property and prepare it for the future.