Boston’s office market ended the year on a grim note, with vacancy rates at their highest level in three decades and still climbing, amid ongoing unpredictability about the future of office work and general economic wobbliness.
Across the city of Boston, 17.6 percent of office space sat empty in the fourth quarter, according to research from Colliers International — the highest rate in the more than three decades Colliers has tracked data, research director Jeffrey Myers said. That’s almost 12 million square feet — roughly ten Prudential Towers. In older and often-less-appealing Class B space, the vacancy rate is 23.6 percent, he said.
“This is firmly a tenant’s market,” Myers and colleague Kelly Doonan wrote in their fourth-quarter report.
And some tenants are backing away. One example: Bank of America, which did not renew its lease for 196,000 square feet at 225 Franklin St. off Post Office Square in the Financial District. Employees instead are working out of the institution’s “newly-renovated office space” at nearby 100 Federal St., a spokesperson said.
That move is a key example of what brokers call a persistent “flight to quality” in the current office landscape, with higher-quality buildings that boast substantial amenities proving more attractive to prospective tenants. Companies are asking: “‘OK, how can we get into the best space so that our employees want to come to work, they want to come into the office, they know that they’re coming into the best buildings,’” said Liz Berthelette, director of research for brokerage Newmark.
Also adding to vacancy rates: A continued flood of space being listed for sublease. Tech companies in particular — some of which took huge blocks of space before the pandemic to accommodate planned growth — are now in layoff mode and are responsible for close to half of the 3.9 million square feet of space available on the sublease market, CBRE data show. Insurance and law firms are also putting up space for sublease. There are 19 blocks of more than 50,000 square feet — 14 of which were from technology firms — listed for sublease, according to CBRE.
As for companies that might be in the market for new space, unless they’re forced to make a real estate decision because of a lease expiration, leaders are biding their time, said Suzanne Duca, CBRE’s director of research for New England.
“There’s been just a structural change in how we are working,” Duca said. “We’re starting to see those implications now . . . What’s become clear is that the flexibility component is not going anywhere.”
One major lease deal that closed in the fourth quarter was Medtronic taking 113,000 square feet at 10-20 Channel Center in Fort Point, a spot that had sat empty for five years, according to research from JLL. Matt Daniels, who leads the firm’s New England brokerage, said he’s expecting deals done for shorter lease terms — five to seven years, rather than a decade or longer — as companies gather data on how their workplaces function effectively in a hybrid world.
“A lot of these companies just don’t know how they’re going to be operating on a persistent basis,” Daniels said. “‘How does this work? Do I lose the culture of my company?’ That’s not determined in a day.”
The slowdown is most evident downtown, where seven out of 10 buildings are at least 10 percent vacant, Colliers data show. Much of the lease activity that’s expected in the coming months is from companies with expiring lease terms, rather than new growth.
And big deals look rare. There are almost no companies looking for more than 100,000 square feet right now, after a spate of large deals last year for blue-chip firms such as Eaton Vance, HarbourVest, and McKinsey & Co. By contrast, in 2019, there were 21 tenants looking for more than 100,000 square feet or more, Newmark data show. The firm expects some larger lease requirements to come back this year, Berthelette said.
One sign of hope, researchers say, is that the diversity of Boston’s economy gives the city a stronger foundation than others that are more heavily concentrated in specific industries.
“Boston always bounces back, I think, much faster than a lot of other markets around the country,” Duca said. “That’s due to the makeup of everything that’s here. We take it a little for granted, sometimes, because it’s just our ecosystem, and it’s what we live and breathe every day, but it is really a huge benefit to the economy here.”