By: Ben Heller, Managing Director – Boston Brokerage
Boston has enjoyed a solid and steady recovery in this economic cycle and has been in expansionary mode for over two years. This cycle has been different in terms of its effects on office space in the CBD than the previous ones, however. And the JLL Spring Skyline highlights that we are entering yet another stage of health.
Between 2010 – 2012, firms were still reeling from the hangover from the Great Recession and were conservative value seekers; CEO’s were looking to increase space efficiency and decrease expenses. The pain was primarily felt in the low rise of the Boston CBD market where the vacancy had reached 16%. A recalibration in tenant make-up was taking place – for each financial firm that was shedding space, a number of high tech firms were popping up. People wanted value and took advantage of those spaces that were in the mid 20’s in rent, as the class B space was getting leased first.
By 2014 all the “value space” had been leased. The low-rise space in class A towers was also leased as the spread between value space and class A low-rise space evaporated. The mid-40’s replaced the mid-20’s in rents. Firms switched their focus from expense control to talent retention. The low-rise vacancy rate hit 8.3 percent and pressure on rents started moving up the building.
This brings us to today. We are entering a new phase in this cycle – the phase where demand for high rise is here in a big way; the phase where CEO’s say “A downtown tower is the right fit for our growth, culture and organization.”
The data is starting to show just this. According to the JLL 2015 Digital Skyline, the average high rise rates jumped almost 7 percent in the last six months alone, compared to 1.1 percent for the low rise space. This spike in high rise rents is a phase in the recovery we have been anticipating. That phase appears to finally be upon us.
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