2024 Year-End Boston Office Report

Despite another challenging year for the metropolitan Boston office market, the last quarter offered indications of slight tailwinds for the asset class.

The last four months were dominated by several significant blue chip renewals, as well as modest improvements in certain aspects of market fundamentals. Nevertheless, total vacancy across the market ended the year at 19.1%. The year-to-date absorption print registered at -4,539,520.

The most significant news came in December in the form of the first and second largest leases of the year. The law firm Ropes & Gray renewed their lease at the Prudential Center in Back Bay, committing to 413,000 SF through 2041. At 101 Seaport Boulevard in the Seaport, the second largest accounting firm by revenue, PWC, renewed for 335,000 SF, extending their commitment to the building that bears their name by six years until 2036. PWC was one of the largest commitments to the burgeoning Seaport submarket when they signed their initial lease back in 2013. Their original agreement was set to expire in 2030, and with this early renewal they solidified their commitment to the Seaport and their office footprint. However, they did shed approximately 25,000 SF in the process, and have since put one floor up for sublease. Across the street at 200 Clarendon, Latham & Watkins also inked a renewal for 76,000 SF. The South Station Air Rights Project (650 Atlantic Avenue) received their first executed lease from law firm Jones Day. The practice signed for just under 44,000 SF – a notable 20% expansion of their footprint from their current premises at 100 High Street, which they intend to vacate.

In the suburbs, Cisco Systems renewed their lease at 3-6 Mill Street in Maynard, signing for 121,000 SF. Eastern Bank signed a new lease for 52,000 SF at 601 Edgewater Drive in Wakefield in late October, which was one of the larger direct deals this quarter. They have now become the fourth largest bank in Massachusetts following the finalization of their merger with Cambridge Trust Co. back in July.

There is positive momentum for this market, albeit slight. In development news, Skanska pulled building permits in late December for their 625,000 SF office tower on Stuart Street. This type of development is significant. Not only is there no new speculative office construction downtown on the horizon, Skanska has had this project in the works for nearly a decade, with their initial LOI coming in August of 2015. Norges Bank Investment Management – the entity that manages the largest sovereign wealth fund in the world, made a massive commitment to the city of Boston by acquiring an additional 50.1% interest in 501 Boylston Street and 33 Arch Street – taking full control of the assets in the process. The acquisition price was not immediately known, as 501 and 33 transacted as part of a larger portfolio deal that included 6 other office assets across the country. John McCarthy, Head of U.S. Unlisted Real Estate for NBIM was recently quoted: “We’re probably the largest investor in the city… undoubtedly, it’s our largest investment city.” Institutional money with this type of conviction should bring a sense of relief to a challenging office market.

At the end of 2024, there have been several tangible changes from this time last year. The most notable development is the supply of sublease space. Sublease availability steadily increased quarter-over-quarter starting in 2021, reaching or approaching all-time highs across various urban and suburban submarkets.

However, from current data it would appear that trend may have peaked in late 2023. While there have been some slight variations in certain markets – notably, East Cambridge and the Seaport, overall, the trend is heading downwards. To be clear: Sublease availabilities remain elevated in general. However, with fewer sublease options coming to market, and preexisting space being leased or shifting back to landlord control, these changes will begin to positively impact market fundamentals.

It is too soon to confirm that the office sector is out of the woods. Oracle, a long-standing presence in the Burlington office market, recently announced plans to significantly reduce its office footprint. The company has listed several properties for lease: 4 Van De Graaff Drive, a 96,000-square-foot building owned since 2011, is now available for sublease; 10 Van De Graaff Drive, a 153,000-square-foot building owned since 2001, is listed for direct lease; and 6 Van De Graaff Drive, a 128,000-square-foot building completed and leased in 2021, is also on the sublease market.

Ultimately, there will continue to be fluctuations in base market fundamentals. There is yet to be a clear, confirmed direction forwards with a set amount of data to support it. Office fundamentals will remain constrained for the near future, but barring any dramatic macroeconomic changes, we can count this modest reduction in sublease availabilities as one of the first tailwinds this asset class has received in many years, however light the wind may be.

For more information please contact:

Mark Fallon, Director of Research & Strategy | mfallon@hunnemanre.com