Market fundamentals in metropolitan Boston remain under pressure, yet pockets of positivity have started to emerge.
The Financial District notched its first significant decrease in vacancy - dropping more than 2.5% since its peak. The Back Bay earned comparable gains - its vacancy decreased 2.7% from its relative peak, as well.
Select submarkets in the suburbs have been the recipient of vacancy improvements: both 128 North & 495 South have notched several consecutive decreases. Unfortunately, several markets continued their decline. All three submarkets in Cambridge are now at or approaching all time highs in vacancy. East Cambridge in particular stands at a stark 20.5% vacant – a high water mark only eclipsed in the time period immediately following the Dot-Com Bubble burst. It should be noted that office inventory in that submarket has expanded by 70% since that time period, which now leaves approximately 2 million square feet vacant – the most on a relative basis in the submarket’s history. It is clear that there remain several rather significant barriers in major markets that continue to stymie the start of a full recovery. Ultimately, while these improvements are not transformative, they offer modest indications that the market-wide deterioration in office fundamentals may have reached, or is approaching, a bottom. Furthermore, it is becoming clear that it may not be full market/submarket recoveries, but rather a building-by-building approach, dependent on sponsorship, representation, price sensitivity, and of course – location. We provide a deeper analysis of this “brick-by-brick” revival further in this report.
The largest lease year to date came from Klaviyo – a marketing/advertising firm that renewed and expanded its footprint at 125 Summer Street. The marketing concern had moved to the Postmodern tower back in 2019, taking control of nearly 160,000 SF. This new lease, at 256,000 SF, represents a 60% expansion in their space in just under six years. In fact, this represents the third expansion for the homegrown Boston company in just under a decade – a remarkable 3700% increase in space since one of their first lease commitments for 6,700 SF at 2 Financial Center back in 2015. At 100 High Street, Fragomen also executed a long term renewal for 31,000 SF. In the Seaport, Nutter Mclennen & Fish LLP renewed for 93,495 SF at their headquarters building at 155 Seaport Boulevard, shedding 30,000 SF from their prior lease.
The suburbs saw their fare share of deals as well. Global Partners dominated the news cycle at the beginning of the year with the announcement of their HQ relocation. The Fortune 500 energy supply company moved from 800 South Street in Waltham to 275 Grove Street, Newton – taking 100,000 SF across three floors in the process. This follows on the heels of their April acquisition of four liquid energy terminals in the Northeast (one of which is in Chelsea) for $212M. Phia Group signed a new lease at 250 Royall Street in Canton for 30,000 SF. In the Inner Suburbs, North Suffolk Community Services inked a 30,000 SF direct deal with Belam Realty at 5 Winnisimmet Street in Chelsea – an office asset also represented by Hunneman.
There has been a flurry of sales activity – 29 transactions to date. The most notable of which certainly has to be 1 Lincoln Street. The 1.1 million SF office tower transacted via a public foreclosure auction, on the Bedford Street side of the building on March 21. MSD Partners, who held the senior debt in conjunction with GIS, a Singaporean wealth fund, along with Divco West, who held debt on the building in a mezzanine position, offered the highest and only bid of $400M. Previous assessments of the building back in 2022 had approximate valuations of the 36 story office tower at $1.3B. Assuming the new basis lands around the winning bid figure, that represents a nearly 70% decrease in value in just three short years.
For more information please contact:
Mark Fallon, Director of Research & Strategy | mfallon@hunnemanre.com