Simply put, Boston is — and will continue to be — a top destination for both tenants and capital. With strong market fundamentals and key drivers like education, finance, healthcare, life sciences and technology, 2018 is likely to be another terrific year for the commercial real estate sector.
Boston’s urban core comprises four major submarkets: Downtown, Back Bay, Seaport and Cambridge. Together, these submarkets total more than 96.1 million square feet of office and lab space. This sector of the market features a vacancy rate of approximately 8.8 percent, positive net absorption of more than 300,000 square feet in 2017 and rental rates that are on the rise.
Boston’s urban office market is largely driven by the region’s high concentration of educational institutions, financial and professional services, healthcare, life sciences and, perhaps the most important, technology. These industries excel in the Boston area due to its high concentration of knowledge workers and its spirit of innovation and entrepreneurship.
The biggest trend impacting Boston recently has been the large-scale relocations of tenants into the urban core — both from within and outside of the market. This is a trend that shows little signs of slowing down.
Other tenants making the move into the urban core include Reebok, Converse, America’s Test Kitchen and Autodesk. Amazon is rumored to be in the market with a requirement for 500,000 square feet of space, with an eye on the Seaport.
Investors of all shapes and sizes have taken note of the above trends, with 2017 being a very active year for Boston transaction activity, including acquisitions by Deutsche Asset Management (100 Northern Avenue), Morgan Stanley (250 and 253 Summer Street), CIM (1000 Washington Street and 321 Harrison Avenue), AIG (the HIVE), Jumbo Capital Management (50 Congress Street), Ashkenazy Acquisitions Corporation (South Station) and Bentall Kennedy (93 Summer Street). The only factor limiting transaction volume in 2017 was a lack of inventory, as demand far outstrips supply.
Twenty-eighteen is sure to be another terrific year for the Boston office market. On the fundamental side, tenants will continue to relocate to the urban core to take advantage of public transportation, the young and talented workforce and the existing ecosystem of knowledge-based workers. On the investment side, core capital will continue to chase the few deals that will likely come to market. It is important to point out that this pent-up demand has compressed yields for core assets in gateway markets, and that further compression may occur for the right asset. One thing is certain, Boston will continue to be a target in 2018, whether it’s tenants seeking to attract talent or capital seeking stable cash flow in one of the country’s strongest office markets.
Ben Sayles is a senior director in the Boston office of HFF with more than 15 years of experience in commercial real estate. He is primarily responsible for investment sales transactions focusing on office, multi-housing and retail properties.
A graduate of Trinity College in Hartford, Connecticut, Mr. Sayles is the Director of the Commercial Brokers Association and an Executive Committee member of NAIOP Massachusetts. Additionally, he is active in several other notable commercial real estate professional groups, including Urban Land Institute and International Council of Shopping Centers.
Robert Butler is an associate in HFF's Boston office. He works with the debt and investment sales teams underwriting and preparing financing offering materials for all property types in the Boston market. Additionally, due to his fluency in Mandarin Chinese, he assists the increasing number of Chinese groups seeking investment opportunities in Boston.
Mr. Butler joined HFF in 2014. Prior to HFF, he had leasing and advisory roles for both JLL's office markets team in Beijing, China, and CBRE's retailer rep team in Chengdu, China. His responsibilities included helping Fortune 500 companies and Western brands expand their presence in China. Mr. Butler is a graduate of Wake Forest University, where he majored in business with minors in entrepreneurship and global trade and commerce.
Originally appeared in Northeast Real Estate Business magazine.