Boston’s office market is roaring back after years of weakness, with rents rising swiftly as local companies add employees and move forward on construction of new buildings in the city and nearby suburbs.
During the last three months, average rents in Boston’s top-rated buildings jumped to $51.31 per square foot, their highest level in four years, according to the commercial real estate firm Cushman & Wakefield.
In addition to strong leasing activity, several major firms are building new office complexes, including Converse Inc., Biogen Idec Inc., and State Street Corp. Additional buildings are being planned in the Back Bay, Cambridge’s Kendall Square, the South Boston Innovation District, and near North Station.
“Boston is one of the top five office markets in the United States,” said Donald Noland, managing director of research at Cushman & Wakefield, adding that the region is benefiting from especially strong growth among technology and life sciences firms. With an unemployment rate of 5.2 percent, Boston has more than regained all the jobs it lost during the economic downturn.
Unlike the economic cycles of recent decades, much of the current construction and leasing activity is focused on Boston and its immediate neighbors, with companies displaying more interest in locating and expanding in the urban core.
‘Boston is one of the top five office markets in the United States.’
Cushman & Wakefield’s report indicated that rental rates in the suburbs have remained relatively flat, although communities such as Burlington and Waltham have continued to attract new tenants.
Office rents have not yet recovered to their previous peak, reached in the second quarter of 2008, when top-rated space in Boston was leasing for an average of $67.82. But they have increased steadily since the beginning of 2010, making it easier for developers to support construction of new towers.
About 3.2 million square feet of space is under development across the region, the most since 2003 and a dramatic increase from only 200,000 square feet two years ago, according to the real estate firm Richards Barry Joyce & Partners of Boston.
“The construction pipeline is notable not only for its size but also its diversity,” said Brendan Carroll, senior vice president of research at Richards Barry Joyce. “Greater Boston features significant development by companies in a wide range of industries: technology and biotechnology, food services, business services, and manufacturing.”
Converse is building a new headquarters complex next to North Station, where it will move from a facility in Andover. Biogen Idec is building in Cambridge’s Kendall Square, and State Street is constructing a large complex in the South Boston Innovation District.
Along with red-hot Kendall Square, the Innovation District has continued to attract significant investment in recent months.
The law firm Goodwin Procter has committed to leasing space in a new hotel and office building to be constructed at Fan Pier, and the accounting firm PricewaterhouseCoopers LLP is also negotiating a deal to build new offices in the district.
While building activity is beginning to increase, the office market is not yet strong enough to support significant speculative construction, although at least one such project is underway in the Fenway neighborhood.
More than 90 percent of the space under construction in the Boston market is pre-leased to specific tenants.
Noland, of Cushman & Wakefield, said more speculative building could occur if the market continues to improve at the pace of the last year, when companies took a total of 1.8 million square feet off the market.
He said much of the growth is being driven by companies moving into urban centers, where they can be near transit and entertainment options favored by young employees.
“They know the best way to attract and retain talent is to have a modern facility in a well-located urban location,” Noland said. “It’s especially true for the millennial age group. That’s where they want to be.”