Workers Aren't Running Back To Boston's Recovering Office Market
Boston’s largest employers placed big bets on a return to the office over the summer, signing massive lease expansions and extensions and scooping up sublease space. But employees have yet to flock to the workspaces.
Despite leading the nation in office leasing activity and active tenants-in-market metrics in September, according to CBRE, public transit ridership remains at approximately half its pre-pandemic level and office occupancy sits at a fraction of pre-pandemic volume. Though foot traffic in the urban core is improving, the region's thriving life sciences industry appears to be covering a continued lag in the office sector.
“When you start peeling the layers of the onion away, when you take away all lab buildings, that’s when the numbers become much less optimistic,” Avison Young Northeast Data Team Lead Elaine Wall said. “The lab numbers are really bolstering a lot of the data.”
Mobility data by Apple and Google and office occupancy statistics reported by commercial real estate firms show upticks in downtown visitors compared to the pandemic depths of last winter, when Boston office occupancy was as low as 5% around the holidays. This past summer brought mobility up 60% over last winter’s lows, according to Hunneman research, while office occupancy in August sat between 15% and 18%, according to CBRE.
Subway ridership in August was 52% of its pre-pandemic level, per Hunneman’s Metro Boston Office Q3 2021 report. Buses saw just 42% ridership compared to the same pre-Covid period, while commuter rail bringing workers from Greater Boston’s farthest suburbs and Providence, Rhode Island, saw just 6% of a pre-pandemic ridership level over the same time frame.
Adding to the gloomy outlook was a muted post-Labor Day return as employers decided to wait out the summer’s delta variant surge. The office market was also beholden to local Covid mandates, which dampened attendance.
The region’s life sciences market, by contrast, was deemed essential in-person work during the coronavirus pandemic.
Avison Young’s Vitality Index, which measures the pace of return to downtowns, counts Boston as the nation’s second-most-resilient market, with a visitor volume at negative 59.1% as of last week compared to early March 2020 levels. Yet the brokerage counts visitor volume in single digits for some of Boston’s biggest office tenants like Liberty Mutual and PwC — firms that have committed to either a delayed return-to-work or hybrid scheduling altogether.
Tenants already in Boston offices and newcomers to the market don’t appear discouraged by the metrics. A few nine-figure SF lease deals propelled the market to its first positive quarter in 18 months. East Cambridge tech firm Hubspot and downtown asset management stalwart Wellington Management both signed huge lease extensions and expansions in anticipation of future growth.
Tenant improvement allowances have increased 10.5% from 2019, according to Avison Young, and free rent periods remain near historical highs, enticing tenants to sign deals. Office occupiers have also had almost two years’ worth of time to analyze hybrid work strategies in pulling the trigger on lease agreements, Hunneman Director of Research Tucker White said.
“They’ve had enough time not only to look at the initial metrics, but they’ve also dabbled with the hybrid model,” he said. “I think companies have made those decisions already whether they want to be back or not.”
The ramp-up of in-person work will remain slow, experts predict, and foot traffic and occupancy numbers will be skewed due to hybrid work plans. Boston Properties, one of Wellington Management’s landlords, is anticipating attendance across its portfolio to reach 100%, although not every day of the week because of hybrid schedules, an executive said on its recent Q3 earnings call, Alpha Street reported.
“I think a lot of managers, a lot of leaders and a lot of employees, in general, do enjoy that office camaraderie,” Wall said. “Are we going to return to the five-day-a-week work schedule? I think that’s unlikely.”