From Lori Mabardi
Boston Research Director
JLL’s spring Skyline Review reports that the city of Boston is undergoing a large-scale transformation through its expanding innovation, growing amenity base, ongoing urbanization, and tightening office fundamentals.
While a few Skyline towers face challenges with large vacancies, on the whole, the Skyline tower set continues to be healthy. All boats are rising and rents are up 6.8 percent year-over-year. The diversity of tenants wanting to locate in the city continues to spur healthy leasing activity overall. From large credit to small start-ups, Boston now appeals to all kinds.
Year-over-year rent change in Boston overall
Downtown, the tower subset continues to experience strong leasing activity. A number of large blocks of space swayed the data, pushing the vacancy and availability rates up by 0.6 and 4.5 percentage points year-over-year to 13.4 and 21.3 percent respectively. The 4.5 percentage point rise in availability can be attributed to three large blocks of space that are now listed on the market as future available. Most notably, Goodwin Procter listed 415,000 square feet at 53 State, and will relocate to 360,000 square feet at 90-100 Northern Avenue in the Seaport.
Low-rise buildings exhibited most of the gains, with rents rising 10 percent. As the Class B space has leased up, and pricing gap between low-rise and Class B spaces has narrowed, low-rise space has become attractive again. The leasing of this space has increased. The vacancy rate for this subset is now down to 11.7 percent.
The Class B market has been the beneficiary of current conditions. As the Class B space has leased up, and the difference in pricing to low-rise has narrowed, low-rise space has become attractive again. The leasing of this space has increased with the vacancy rate now at 13.7 percent.
The Downtown market is currently undergoing a boom in construction of new multifamily and retail developments. This new growth, combined with the city’s expanding innovation economy, has continued to draw non-traditional office users to the Downtown neighborhoods.
The Back Bay maintains its status as Boston’s tightest tower set with a vacancy rate of 4.0 percent. The market’s availability rate of 14.5 percent, however, could point to a potential softening of fundamentals in the near future. Market pricing in Back Bay towers remains the highest in Boston’s CBD. The average Skyline asking rent grew to $63.40 per square foot gross.
With only 1.6 million square feet of existing tower space, the Seaport District continues to be air tight with a vacancy rate at 9.6 percent compared to 13.4 percent Downtown. The submarket showed a $3 increase year-over-year reflecting the growing demand from established firms looking to be part of the surging neighborhood.
Build-to-suit projects account for most of the ongoing office construction activity across Boston’s CBD. In the Seaport, construction for PwC’s build-to-suit at 101 Seaport Boulevard is underway, and Goodwin Procter’s at 90-100 Northern Avenue is scheduled to begin in April 2014. While the Seaport remains Boston’s frontier for new development, the past six months have seen proposals for large-scale developments in both Downtown and the Back Bay.
2013 marked Greater Boston’s strongest year in office sales in the last six years. With nearly $5 billion of sales volume in 2013 alone, both the Boston CBD and suburbs continued to gain interest from both institutional and foreign investment funds. The Boston CBD saw a number of high profile trades in the last half of 2013.
Boston is enjoying a large-scale transformation. With tightening fundamentals in the premium Class B segment will come a further tightening in the Class A sector for at least the next 12-24 months.