Greater Boston’s commercial real estate markets posted varied results in the second quarter. While the lab market is tighter-than-ever and the industrial market continues to impress, absorption was flat in the office market and investment sales volumes are down across the board. Global economic conditions, BREXIT and the upcoming presidential election are some of the concerns weighing on business sentiment. With that said, Greater Boston is still on solid footing and the recent rebound in domestic job growth (287,000 jobs were added in June) could provide a boost to activity as we move into the summer doldrums.
Here are some highlights from our Q2 2016 market reports:
- Conditions in the Greater Boston office market were relatively flat in the second quarter – recording roughly 27,000 square feet of positive absorption. Rising sublease inventory, consolidations and corporate relocations were largely responsible for the lack of movement. While office vacancies are 70 basis points lower than year-ago levels, they have inched up by 20 basis points since the first quarter. Landlords have been able to push through additional rent gains as fundamentals are still positive. However, the pace of growth is slowing and some landlords are beginning to ease on asking rents. While it is still too early to call for widespread weakness in the office market, we may see a turning point in the cycle this year.
- Vacancies in the Greater Boston industrial market have fallen to a 15-year low; ending the second quarter at just 8.7%. Year-to-date the market has absorbed 2.3 million square feet of industrial space. Given such positive fundamentals, industrial landlords have been consistently raising rents in Greater Boston. As of the second quarter, lease rates expanded by 11.3% on a year-over-year basis, averaging $8.26/SF. Although leasing momentum has slowed from last year’s rapid pace, demand for modern, high-quality industrial space is solid.
- The Greater Boston lab market posted another positive quarter with net absorption surpassing 465,000 square feet and vacancies reaching record lows at just 2%. Cambridge is still the epicenter of activity as demand for space continues to outstrip supply by a wide margin and vacancies declined to just 0.9%. This scarcity of space is driving tenants to execute forward lease commitments, consider build-to-suit construction and seek out quality space outside of Cambridge in the Longwood Medical Area and along the Route 128 belt. Fundamentals are expected to remain positive in the coming quarters, but the second-half of 2016 will be pivotal as macro headwinds may be on the horizon.