Boston’s office market is still struggling to find its footing amid a turbulent economy and an ongoing disconnect between many companies and their employees about returning to the office. And that has a growing number of big-name companies apparently rethinking just how much office space they need.
General Electric Co. last week became the latest big-name Boston company to bail on a big office this fall, announcing it would vacate its 100,000-square-foot Fort Point headquarters and move to something smaller by early next year. Wayfair, Reebok, and a slew of technology tenants have recently made similar decisions to sublease space they’re under contract to rent for years to come.
Companies in urban Boston listed some 1.1 million square feet of office space for sublease just in the last three months, according to research from commercial brokerage CBRE. That has grown the stock of space available in the sublease market by about one-fourth in the last year, to 3.4 million square feet, about equal to its pandemic high and far more than was typical before COVID. It’s not just the office market, either — lab space subleases in Boston have more than doubled in recent months “as life science users continue to reevaluate their real estate footprint,” according to a recent report from brokerage Newmark.
There are more people in office buildings than there were — occupancy levels downtown have more than doubled since this time last year — said Lauren Lipscomb, a senior vice president at CBRE in Boston. But the post-Labor Day return to office was smaller than anticipated. That’s putting pressure on employers and company leadership to offer workers something more than the same old offices they left behind in March 2020.
“They need to be making meaningful adjustments and changes to their office environment and their office space in order to lure their valuable employees back to work,” Lipscomb said.
When GoTo — the software company formerly known as LogMeIn — decided to be a remote-centric organization in late 2020, it subleased 320 Summer St. in Fort Point. It has still has an office across the street at 333 Summer St. But even that is more space than the company needs, said Andrew Hook, the company’s vice president of real estate and workplace experience.
“Our employees utilize the office for in-person collaboration, often in groups, but still choose to do the majority of their work at home,” Hook said in an e-mail. “It’s a crowded market, so we’ve played with listing different amounts of space for sublease in order to generate interest.”
In Back Bay, online furniture seller Wayfair recently listed 176,000 square feet at 222 Berkeley/500 Boylston St. for sublease, and is also subleasing 321,500 square feet across nine floors at 10 St. James Ave. and 75 Arlington St. Prior to COVID-19, Wayfair was one of the largest, and fastest-growing, office users in the city, signing huge leases across the Back Bay to accommodate future growth. But this summer the online retailer announced it would cut some 870 jobs, including 400 in Boston, amid tough economic conditions and changing consumer spending habits. On a recent earnings call, Wayfair’s chief financial officer said the company has “excess space to sublet out.”
“Our requirements for corporate office space have changed post pandemic,” said Michael Fleisher, Wayfair’s chief financial officer, in an August earnings call.
Indeed, the rapid runup in federal interest rates and volatility in the stock market, along with concerns about the labor market, inflation and a looming recession are making it tougher for some employers to figure out their long-term office plans, said Liz Berthelette, research director at Newmark. If companies don’t have to make decisions, she said, some will put them off until there’s more clarity.
And companies that are more heavily dependent on stock valuations for raising capital may be more likely to examine their real estate footprint, said Jeffrey Myers, research director at commercial brokerage Colliers.
Still, there have been several big leases lately, especially from blue-chip financial services companies. Private equity firm HarbourVest leased 11 floors at One Lincoln, investment management company Eaton Vance finalized a deal for its future headquarters at One Post Office Square, consulting firm Bain & Co. leased the whole of a to-be-built office building at 350 Boylston St., and consulting firm McKinsey consolidated two offices into a 95,000-square-foot space at Winthrop Center.
“These organizations have been ready to execute on their real estate strategy,” CBRE’s Lipscomb said, “whereas it feels like the (technology, advertising, media, and information) world is still a little bit unsure of what their office future is going to be.”