Economic momentum is picking up, and tenants are continuing to expand. As a result, tenant leverage is dwindling heading into 2015 and landlords continue to push rents.
Demand persisted in the third quarter in Greater Boston as the market recorded a record absorption of 1.2 million square feet. In fact, Boston was in the top 10 markets nationwide for absorption in the CBD and the Suburbs.
Greater Boston direct asking rents rose 3 percent over the quarter, breaking the $30.00 barrier. This represents an increase of 8.8 percent year over year. While still off peak levels, rents are now approaching 2008 levels. The vacancy rate also dipped by 60 basis points reaching 13 percent, only 2 percentage points over the long run average.
Still, new construction remains limited at least in the speculative space. This dearth in new supply over the next 12-24 months is anticipated to create a squeeze on the market and drive rents at an accelerated pace. That being said, speculative is lurking, in the form of renovation/rehab projects. New deliveries are not anticipated for some time.
This quarter, the capital markets heated up in the CBD with a couple of large portfolio transactions – in particular on behalf of foreign capital. In the third quarter alone, building ownership in part or in total by foreign capital amounted to $4.3 billion and 6 million square feet of commercial real estate space amounting to 8 percent of the CBD and Cambridge markets.
Economically, Greater Boston had a strong quarter, adding almost 5,000 office-using jobs. The metro area hasn’t seen this level of quarterly growth since second quarter 2012.