Downtown Boston Faces New Challenges In Finding Tenants

What's next for Downtown Boston? Competition from the Seaport and other submarkets, naturally. Will the submarket be able to compete for traditional (such as law) and nontraditional tenants (such as tech) in '17?

Encompass Real Estate Strategy reported recently that slight positive absorption in Q4 2016 left vacancy unchanged at 9.6%, as Boston's core submarket experienced the first calendar year of negative demand since 2011. Rents are still going up, rising 0.7% for the quarter as part of a pattern of steady increases since 2011.

Other Boston submarkets are now competing for similar tenants as the CBD. "Numerous urban areas, including Cambridge, the Seaport and the Streetcar Ring, are starting to exhibit common dynamics and share tenant base types,” said Encompass director of intelligence Brendan Carroll. “This quarter’s continuation of positive demand and rising rent levels on a total market level is underscored by far more varied activity when looking area to area."

The fourth quarter was a busy one for Boston's Downtown core: The FBI vacated 175k SF at Center Plaza in a move to Chelsea, while Houghton Mifflin moved into 162k SF at 125 High St, in a continuing reshuffling of the submarket’s tenant base.

Also, overall absorption was flat the last two quarters, but Class-A properties saw 229k SF of positive absorption as well-capitalized landlords cater to demand for alternative urban space on their lower floors. A 2.6M SF inventory of Class-B Greenway space is 1.5% vacant, reflecting a dearth of space similar to that in Fort Point.

Find out more at our Future of Downtown Boston event on Jan. 19 at the Boston Harbor Hotel, beginning at 7:30am with breakfast and schmoozing. Sign up here.