Q4 Market Reports Point to Boston’s Strength and What 2017 Might Bring

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Greater Boston’s commercial real estate markets ended the year on a high-note. In the office market, the suburbs led the way accounting for the majority of the more-than one million square feet of positive absorption. The lab market, particularly in Kendall Square, remains tight and industrial vacancies have reached another new low. While the near-term outlook for Boston remains fairly positive, market performance will likely be more measured than in recent years.

 

There are several macro trends worth keeping an eye on in the coming quarters that could result in up or downside risks to Boston’s outlook. Many marketreport-emailimage-q4-16signs point to a stronger national economic outlook in the coming year. GDP growth was revised up to 3.5% in the third quarter, corporate profits and wages are rising and the labor market continue to impress. Moreover, the new administration’s proposed tax cuts and spending policies could spur beefier job growth as well as bolster GDP growth. However, December’s national job numbers were lower-than-expected and there are concerns surrounding inflation over the next few years.

 

Here are some highlights from our Q4 2016 market reports:

  • The Greater Boston office market posted another positive quarter with more than 1.3 million square feet in net absorption. Build-to-suit construction, including the completion of new headquarters for Clarks and the FBI, helped drive this office demand. Metrowide vacancies fell by almost 100 basis points over the last year to 11.2% in the fourth quarter and direct asking rents inched up to nearly $33 per square foot.
  • The Greater Boston industrial market absorbed more than four million square feet of space in 2016. Vacancies are now sub-8%; reaching levels not seen in more than 15 years. Demand drivers remain vast and varied. E-commerce, housing and building-related firms, drug manufacturing, logistics, breweries and medical marijuana facilities are all bolstering industrial demand in the marketplace. Given such positive fundamentals, industrial landlords have been consistently raising rents in Greater Boston. At the close of 2016 lease rates expanded by 5.5% on a year-over-year basis, averaging $8.42/SF. While modern, quality industrial space continues to garner a premium, in some instances location (particularly in-fill areas) is driving lease rates. Expect conditions to remain positive going into 2017. Increased leasing activity during the second-half of 2016, coupled with more subdued construction, will keep market fundamentals moving in the right direction.
  • The Greater Boston lab market is as hot as ever. Net absorption totaled 340,159 square feet metrowide in the fourth quarter. The completion of the Pfizer-anchored North Building at 610 Main Street accounted for a bulk of activity. Metrowide vacancies are nearing 3% and East Cambridge vacancies are sub-1% as demand for space remains heated. With little new product on the immediate horizon and strong demand for space, look for market conditions to remain tight in the coming quarters.

For more information on our market statistics and other research capabilities please contact our Research Director Liz Berthelette

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