Savills: Boston Office Leasing Activity Hit 2-Year High In Q3
Although the Boston's office market is nowhere near recovery, new signals point to cautious optimism for a healing market.
Boston's office market saw leasing activity reach 3.4M SF in the third quarter, a two-year high, according to Savills data. That is up from 2.6M SF at this time last year.
Leasing was at the highest level since Q1 2022, which saw 3.5M SF of activity. The city also enjoyed a steady slowdown in negative office-using employment data, while asking rents reached a new peak, most notably for Class-A buildings.
The signs are small, but they point to newfound hope for stronger office demand.
“Third-quarter leasing was actually up, and it actually hit a two-year high, which was surprising,” said Marisha Clinton, Savills vice president of research East, adding that again last quarter, financial and legal services tenants renewed and expanded in higher-quality locations.
The quarter saw two notable leases in Boston, Vertex Pharmaceuticals' 1.1M SF renewal at The RMR Group's Fan Pier in the Seaport and Bain Capital's 378K SF renewal and expansion at BXP's 200 Clarendon St. in the Back Bay.
Clinton said the two deals were large contributors to the uptick in leasing. Both tenants looked at other properties when their leases were set to expire, and both decided to stay put and renew leases in properties they deemed to be the best in the market.
“Just a continued preference for those tenants that can take advantage of higher-quality, better, well-located space,” Clinton said of the decisions. “They are securing those spaces and sometimes increasing their real estate plan.”
Other notable leases in the third quarter included Commonwealth Equity's 152K SF relocation to 275 Wyman St. in Waltham, the Massachusetts Division of Capital Asset Management and Maintenance's 106K SF lease at 1 Federal St. in the Financial District, and Evolv Technology's 90K SF renewal and expansion at 500 Totten Pond Road in Waltham.
The pace of decline in office-using employment growth has slowed since Q1, another positive for leasing activity in the city, Clinton said.
“While it's still negative, the actual pace of declines has been slowing in the Boston office market,” she said of what is considered a leading indicator of the health of the market.
Mayor Michelle Wu last week expressed optimism about Boston's office outlook, noting that in-person office attendance increased 10% this year, almost double the national average. Data from BXP, which used to trade as Boston Properties, shows the company's Class-A Boston portfolio outperformed nationally in 2023 and 2024 by up to 20%, Wu said.
With a bulk of the new leases being signed in Class-A buildings, rents in those offices also saw a new peak. Average asking rents rose 8.9% year-over-year to $56.79 per SF.
The cut in interest rates earlier this month has been another bright light for tenants and landlords, Clinton said. For tenants, the cuts could make hiring more comfortable as revenue projections improve.
“You have improving costs of operations and improved costs in terms of the way they do business,” she said. “It all ties back to what I said before: Improved economy translates into improved revenue growth projections, and not only projections for revenue but also for headcount.”
