Boston and Cambridge Office Markets Continue to Tighten at Mid-year

Cushman & Wakefield today released its mid-year statistics for the Boston commercial real estate market reflecting continued strong fundamentals particularly in City’s Financial District and Cambridge markets, driven by a job market significantly healthier than the U.S. average. In the Central Business District (CBD), Class A direct rents rose 6.5 percent year-over-year to $51.31, their highest level in four years, led by deals in the Back Bay and Seaport District. Overall vacancy in the CBD closed the quarter at 9.9 percent, in line with year-end. Indeed, demand for Class A space remained quite strong through mid-year, reflecting two-thirds of all leasing activity in the CBD.

“Due in equal part to our distinguished employment base and strong market fundamentals, Boston continues to be one of the top cities for investments in the United States,” said Edward Maher, vice chairman of Cushman & Wakefield in New England.

The Cambridge leasing market saw the healthiest absorption year-to-date in the Greater Boston Market at nearly 175,000 square feet (sf). Overall Cambridge vacancy dropped to 6.8 percent and rents climbed 18.6% year-over-year to $45.55, reflecting a dwindling of supply. Laboratory vacancy also fell to 10.3percent, with rents holding north of $55.00 NNN for the first six months of the year.

In the Greater Boston suburbs, rental rates remained relatively flat with overall vacancy dipping 0.5 pp to 18.4 percent as a 20 percent quarterly gain in leasing activity was offset by a year-over-year decrease of 28 percent.

Notably, throughout Greater Boston, year-to-date leasing of large spaces over 25,000 sf is down 19 percent compared to the first six months of 2012. Build to suit activity is dominated by demand in the Seaport District where more than 1.5 million sf is underway. Comparably, the Kendall Square/East Cambridge lab market holds a distant second with 866,000 sf expected to be delivered through 2015.

Investors are showing interest in Class B space in the Financial District, evidenced by the May sale of 40 Broad Street at $110 million ($384/psf; 4.6% cap rate). The sale of New England Executive Park in Burlington in June marked the largest suburban transaction in recent years at $216 million ($209/psf; 5.9% cap rate).

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