A review of the First Half of 2016: Commercial Real Estate Markets

By Liz Berthelette – Director of Research

With the first half of 2016 in the books – and a month into Q3 –  let’s take stock of Greater Boston’s commercial real estate markets. Below are some of the top market highlights from the first two quarters of the year:

  1. The metro added more than 39,000 jobs during the first six months of the year, which is more than half of the jobs added in all of 2015. The metro area’s unemployment rate also reached a 10-year low during the second quarter.
  2. While venture capital funding (both in number of deals and dollar volume) abated in the second quarter, year-to-date Boston-based companies have raised $2.5 billion in funding.
  3. The local lab market is tighter-than-ever with metro-wide vacancies at just 2%. However, the lack of available space is hampering deal volume.
  4. Conditions in the office market held steady through the beginning of the year, but fundamentals are beginning to slow down as sublease availabilities are on the rise.
  5. The industrial market continues to outperform, with year-to-date net absorption surpassing the office and lab markets combined.

2016-MidYear-Stats

Mixed signals in the marketplace have led to an uncertain outlook for the remainder of 2016. Below are some market trends we expect to see in the next four months.

  1. Short-term leases will likely gain more traction. Young tech companies and startups seeking flexibility as well as firms exercising more caution in the face of economic uncertainty will drive these types of deals.
  2. M&A activity is solid. Nationally deal flow has been more measured following the blockbuster years of 2014 and 2015. However, several MA-based companies are reportedly ripe for acquisition.
  3. Rent growth will remain positive; however, with rates nearing cyclical peaks we expect more modest gains going forward.
  4. The recent Brexit vote could result in an uptick in foreign buyers looking for U.S. assets, and Boston has long been a target for foreign capital.
  5. Demand will remain strong for modern, high-quality space in both the office and industrial markets.
  6. Continued strength in the local lab market will drive more landlords to consider building out lab space in office and industrial buildings.

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