Cambridge Office Market Hit Hard By Tech Firms Giving Back Space

Cambridge has long been a national tech hub, but over the last year, the technology industry has become a drag on its office market. 

Office demand from tech companies in Cambridge contracted by more than 85% from 2019 to the end of last year, according to CBRE's fourth-quarter Cambridge office report.

This demand drop came as tech employees shifted to remote and hybrid work schedules, leading their companies to shrink office footprints and put space on the market for sublease. As of year's end, 9.1% of Cambridge's 12.5M SF of office space was listed as available for sublease, the highest rate of any Greater Boston submarket, CBRE found. 

"Cambridge office market has been slow," Cushman & Wakefield Vice Chair Connor Barnes said. "It's one of the highest availability rates in the last decade. And part of that is certainly the way people are using the office post-Covid. Part of it is the shrinking of the office market." 

Cambridge office tenants vacated 821K SF more than they leased in 2023, including 498K SF of negative net absorption in the fourth quarter, CBRE found. That occupancy loss was concentrated in East Cambridge, which recorded full-year negative absorption of 700K SF.

Compared to Boston, Cambridge has been at a disadvantage because its main users of office space, tech companies and life sciences firms, have shrunk their office footprints due to slow funding cycles, experts said. 

"Boston office has a very diverse tenant base. You have tech, biotech, financial services, hedge funds, law firms," Barnes said. "Cambridge is predominantly tech and biotech. If you look at the types of deals and who's been doing deals in Boston, for the most part, those companies don't have a presence in Cambridge."

Nine companies put at least 45K SF on the sublease market in the fourth quarter, according to CBRE. Biogen put 114K SF of its headquarters at 225 Binney St. on the market, the Boston Business Journal reported. Microsoft also put 60K SF on the sublease market at the 650K SF One Memorial Drive, according to CBRE.

Smaller tech startups have also sought to give back space as they reevaluate their office needs in an effort to reach profitability, said Adrian Mendoza, co-founder of venture capital firm Mendoza Ventures.

"With every startup, we're really getting down to like, 'Do you need that expense? Can you cut it down and just keep things nice and lean?'" Mendoza said. 

Many tech companies have the opportunity to get out of leases as the expirations on their pre-pandemic deals approach, Mendoza said.

"We're kind of in the downward slope again. Everyone that had five-year leases in 2019 and 2020 is finally going to be giving up their space," he said. 

Other tech and biotech companies that have put space on the sublease market in Cambridge include Akamai Technologies at its 145 Broadway St. headquarters, as well as Bristol Myers Squibb and Takeda, according to Colliers' quarterly report. 

Cambridge's office availability was up 400 basis points last quarter, according to CBRE, due in part to one big move-out: Medical software and data management company InterSystems vacated 240K SF at One Memorial Drive to relocate to HYM Investment Group's One Congress building in Boston. 

Although VC funding has been down in the region — 816 startups raised $16B in 2023, a 26% decrease from the year prior, the Boston Globe reported — Mendoza said he believes the market could recover this year. He expects more tech companies will come back into the office in the latter half of the year but will be looking for far less space than before.

"We have companies that are looking for a space," Mendoza said. "The coworking side is still going on. Nobody wants to have anything over 10K SF."

Stacey Messier, general manager of the New England branch for coworking operator CIC, said the coworking spaces at One Broadway and 245 Main St. in Kendall Square have seen an uptick in activity as tenants downsize from traditional offices. 

"Our newer prospects as they're touring the space are like, 'We're just looking for those solutions. How do we find something that's a little bit lower-risk?'" Messier said. 

Experts said they are optimistic that Cambridge's office market will bounce back, in part because its inventory is shrinking due to office-to-lab conversion projects and a lack of new development in the city.

The only new supply coming to the market is Leggat McCall's 40 Thorndike redevelopment of the Edward J. Sullivan Courthouse and jail, which will bring 422K SF of offices to East Cambridge.

"We believe in the office market there as much as we believe in the lab market," C&W's Barnes said. "It will be fine. We're just in sort of a lull."