Our second quarter office and industrial report is now available. You can access the full report here, and some highlights from the second quarter are listed below.
The Office Market
Net absorption was slightly positive in Greater Boston’s office market during the second quarter. While fundamentals are generally positive, conditions are clearly shifting in the economy and the office market. Build-to-suit activity and owner-user sales drove a majority of the positive absorption in the suburbs, but metrowide vacancies remained flat compared to last quarter at 11.3%. While absorption may increase during the second half of this year, on the whole, relocations are resulting in decreased office footprints. Looking beyond 2017, demand growth will likely fail to reach levels Greater Boston has seen in recent years.
Landlords continue to push lease rates throughout the metro. However, rents are beginning to level off in some segments of the marketplace. Metrowide average asking rents ended the second quarter at $33.60 per square foot, which is only slightly above first-quarter rents. Class A rents surpassed $41 per square foot at the metro level, with both the Downtown and Cambridge markets averaging more than $60 per square foot. In addition, the lack of vacancy in certain areas, like Fenway/Kenmore and Cambridge’s Class B market, have led to very few rent observations. Any movement in space fundamentals can impact the stats in these ultra-tight office markets.
The Industrial Market
The Greater Boston industrial market absorbed more than 300,000 square feet of space in the second quarter of 2017. Vacancies are 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, high-tech manufacturing, breweries and medical marijuana facilities are all bolstering industrial demand in the marketplace.
Rents have risen 15% since the end of 2014, ending the second quarter at $8.64 per square foot. While modern, quality industrial space continues to garner a premium, in some instances location (particularly infill areas) is driving lease rates. Expect conditions to remain positive in the near term. Steady leasing activity, coupled with more subdued construction, will keep market fundamentals moving in the right direction going forward.