Downtown and the Route 128 Loop led a strong fourth-quarter performance in the Greater Boston office market, with total absorption surpassing 700,000 square feet and vacancies falling to 11.6%. The war for talent continues to drive inbound tenant relocations to the urban markets as well as fuel growth in urban outposts from firms like Bose and possibly Staples and Haemonetics. While we expect this eastward migration to continue, the suburbs remain alive and well as several large requirements have opted to remain outside of the city and build-to-suit construction has bolstered net absorption.
Cambridge’s overheated lab market and a seemingly insatiable demand from the ever-growing biotech industry are directly benefiting relief valve locations like the Seaport and Brighton. Developers continue to pivot from office to lab construction as users seek out larger footprints and/or cheaper alternatives to Kendall Square. At Boston Landing’s growing tech hub in Brighton, NB Development recently landed Mass Innovation Labs, Roche Diagnostics, and Proteostasis Therapeutics. Mass Innovation Labs is also anchoring the first phase of Related Beal’s iSQ development at 6 Tide Street in the Seaport. In Watertown, Boylston Properties continues to expand its roster of lab tenants at the recently constructed LINX building.
The run-up in Greater Boston’s industrial market seemingly has no end in sight. Fundamentals remain tight as demand continues to outstrip supply. With another 1.4 million square feet in positive absorption, vacancies declined by another 40 basis points throughout the past year. New construction remains restrained, and the metro’s inventory continues to shrink, particularly inside Route 128, as developers execute redevelopment projects. Amidst these historically low vacancies, landlords have been able to push through unprecedented rent growth. Since the end of 2014 lease rates have increased by 19% metrowide. Institutional-quality industrial product is even harder to come by, and tenants will pay a premium for this space. Looking ahead, this market’s maturation will likely lead to slower growth as we move through the later stages of this current cycle, but market conditions will remain positive in the near-term.
On the capital markets front, at a macro level, uncertainty surrounding tax legislation and an ever-growing bid-ask spread among buyers and sellers weighed on deal volume during the latter half of this year. Pricing continues to inch higher, with Real Capital Analytics’ CPPI growing by 1.2% from October to November, as demand remains strong for U.S. commercial real estate. Investor appetite for the industrial asset class is growing, with both transaction volume and prices increasing over the past year. This trend is playing out in the local Boston market as well. While solid economic conditions bode well for investment sales going forward, expect deal volume to slide further in 2018 as we move through the later stages of this current cycle.
For a full breakdown of Greater Boston’s Office, Industrial and Capital Markets, access our Q4 Report Here. Look for our Biotech Beat Report next week.