Boston has recovered approximately 80% of lost jobs to-date, almost twice the pace of recovery being exhibited at the national level. Interestingly enough, it is not the jobs that were lost that are being created since the sectors that exhibited a large portion of the cuts like financial services have yet to turn the corner. Even with job growth, there are various dynamics in today’s real estate market that drive whether or not a firm needs additional space to account for additional headcount.
On one side of the spectrum are the firms that are growing organically and taking up more space. On the other are firms that may be adding headcount but rightsizing their footprint to be more efficient. These two dynamics are impacting fundamentals. I would even argue that the space that is being put on the market due to firms rightsizing is today’s version of “new supply.”
Still, demand outpaced supply this quarter as Greater Boston fundamentals continued to improve in the third quarter with the vacancy rate dropping 30 basis points over last year and asking rents rising 1.4 percent over the same period. The bright spot of this quarter however is the Class B segment seeing 3.1% rent growth in Greater Boston compared to 0.4% in the class A segment. This is likely due to the organic growth being seen in high tech/life science firms in Cambridge, the Seaport and beyond, and the continued spillover demand into neighboring areas and suburbs from those segments. Downtown, the Seaport District continued to display strength but the Class B segment in the Financial District demonstrated a great bounce with rents jumping 8%.
The availability rate rose 10 basis points which speaks to tenants that are making sublease space available or notifying the market that they will have space available in the future.