Suburban Slowdown Drives Boston-Area Office Vacancy Above 20%

More companies have sought to give back office space in the Boston suburbs in recent months, driving substantial occupancy losses and bringing the region's vacancy rate to new highs. 

The suburbs had held relatively steady since the start of the pandemic, but as more companies have begun to consolidate and review their long-term plans, the market has seen an increase in sublease availability and vacant space, local office experts say. 

The Greater Boston office market recorded 2M SF of negative net absorption last quarter, and the region's vacancy rate surpassed 20% for the first time in 20 years, according to Newmark. That was up from 16.4% in the first quarter of 2023. 

A decrease in job growth, especially in the life sciences in technology sectors, has exacerbated the slowdown in office leasing across the region. But researchers told Bisnow there are signs this could be the year the market pivots.

"The suburban market definitely drove a lot of the negative absorption this quarter, which, prior to a couple of quarters ago, the suburban fundamentals were holding fairly steady," Newmark Research Director Elizabeth Berthelette told Bisnow. "Now we've started to see that uptick in sublease inventories and are starting to see vacancies rise more than we had in the past."

Suburban sublease availability stood at 5.9M SF at the end of Q1, up from 4.8M SF in the same quarter last year, according to Newmark. The suburbs outpaced the Boston central business district's sublease availability, which ended the quarter at 3.9M SF.

Savills Vice President of Research Marisha Clinton said leasing activity in the Boston suburbs was also flat, with 1.1M SF of leases in the first quarter, primarily in Route 128. The fourth quarter also saw 1.1M SF of activity, and the previous quarters had 1.3M and 1.2M SF. 

"Typically, we've seen a flight to quality in the CBD, which we're not seeing in the suburban market," Clinton said. "Leasing activity was pretty much flat at the start of the year because of that."

The negative absorption was due in part to the lack of job growth in office-related sectors, according to Newmark. The information sector saw the largest decrease in employment, with a 4% year-over-year drop. 

"Given the further impacts of Covid, companies wanted to reevaluate their business plan and ratchet down their forecast for revenue growth," Clinton said. "There were more layoffs that had transpired, which resulted in office-use employment taking a hit."

However, one of the largest leases signed in the first quarter happened in the suburbs. Aspen Technology renewed its lease at 20 Crosby Drive in Bedford and expanded to occupy 155K SF, marking the largest suburban lease since 2022.

There are 20 tenants looking for spaces larger than 100K SF across the region, according to Newmark. But these companies have been slower to commit, leading to 1.3M SF of Boston-area leasing activity in the first quarter, down from 2.3M SF in the same quarter last year, Newmark found. 

"I think we're seeing more touring activity," Berthelette said. "Things feel like they're starting to move a little bit more."

There was 3M SF of offices in the Q1 pipeline across the region, with only a handful of developments under construction, according to Newmark.

Berthelette said there are some positive signs for the office market, with some developers pivoting projects that had been planned as labs to office space, given the slowdown in the life sciences sector. 

"The owners maybe kept it fluid, and now they've kind of changed their marketing strategy and they're marketing more for office users," Berthelette said "We're seeing that in a couple of buildings."

The most notable example is Samuels & Associates' 655K SF Lyrik development in Boston's Back Bay. The project was originally marketed to include life sciences space, but after Lego leased 134K SF at the development in August, Berthelette said the leftover space likely won't be used for lab space. 

Boston Global Investors' 10 World Trade, a 17-story, 555K SF office building, has also pivoted from primarily life sciences to office, according to Newmark. Berthelette said that landlords have become flexible with uses to get any tenant they can.

There have also been several office sales in the market, giving researchers some optimism more activity will happen this year.

The biggest office sales since before the pandemic came last month with Synergy Investments' acquisition of the 21-story, 407K SF 101 Arch St. for $78M. The office building is 87% leased to more than 30 tenants.

Berthelette said these sales are bringing much-needed liquidity into the market, and while the leasing market has remained slow, she is hopeful it could turn around soon.

"We're continuing to see kind of that softening in the market fundamentals," Berthelette said. "But we're coming into 2024 with the hope that we're nearing the bottom or maybe we'll be bumping along the bottom this year."