Boston Office Market Slows While Industrial Heats Up
After delivering a “dynamic” year in 2015, Boston’s office market slowed in early 2016, though its industrial sector continued to thrive, Transwestern reported.
Boston saw 488,000 square feet of negative office absorption in the first quarter, said Transwestern Northeast Research Director Chase Bourdelaise. But he noted that despite its first negative quarter in three years, Boston’s office vacancy rate remains a “healthy” 12.5 percent and average Class A asking lease rates rose 3.5 percent year-over-year to $41.95 per square foot.
“The strong pace that the office market had set was unlikely to continue, so this slower quarter was to be expected,” Bourdelaise said. “Most market indicators, such as vacancy, availability and asking lease rates are still at levels considered to be quite positive.”
Meanwhile, greater Boston’s industrial market experienced its seventh consecutive quarter of positive absorption. The first quarter’s 387,000-square-foot figure brought total absorption to 1.5 million square feet over the past 12 months.
Boston-area industrial real estate vacancy fell to a record-low 10.1 percent while average asking rents surpassed $6 per foot for the first time since 2008, Transwestern said. Vacancy for high-bay industrial space along Interstate 495 fell to 7.2 percent and Metro South vacancy saw its lowest level on record, dropping 1.5 percentage points to 12.6 percent. Route 128 South submarket vacancy rates fell to 3.3 percent and Route 128 warehouse space registered positive absorption in 15 of the last 16 quarters.
Though market-wide office vacancy rose 0.4 percentage points from late 2015, Bourdelaise noted that a few large office leases should commence within the next two quarters. “We anticipate that market will soon be back on track,” he said.
Office vacancy in Boston’s central business district remained flat at 9.1 percent while that submarket’s asking lease rates remained in the mid-$50s at $54.42 per square foot, Transwestern reported.
Bourdelaise said Class A office asking lease rates remained fairly steady in general. In the past five years, Class A asking lease rates in Boston’s Back Bay submarket increased more than $6 to $61.30 per square foot.
“The outlook of the Boston real estate market is positive for corporations and investors alike,” Bourdelaise said. “The Boston market has consistently been a top-five destination for commercial investors, especially foreign.” He noted that Boston received $568 million in cross-border capital so far this year.
“With speculation about the Fed raising rates by the end of the year, we will likely see investors take advantage of low interest rates before they increase” Bourdelaise said.
