“This is a real tenant market,” Myers and colleague Kelly Doonan wrote in their fourth-quarter report.
And a little tenants withdraw. Case in point: Bank of America, which did not renew its lease for 196,000 square feet at 225 Franklin St. at Post Office Square in the Financial District. Employees are instead working out of the institution’s “recently renovated office space” at nearby 100 Federal St., a spokesman said.
That move is a key example of what brokers call a sustained “flight to quality.” the current office landscape, with higher-quality buildings with substantial facilities that prove to be more attractive to potential tenants. Businesses are asking, “‘OK, how can we get into the best space so that our employees want to come to work, they want to come to the office, they know they’re going to be in the best buildings,'” said Liz Berthelette, research director for real estate firm Newmark .
Also contributing to the vacancy rate: a continued overabundance of space being offered for subletting. In particular, technology companies — some of which took up huge blocks of space before the pandemic to accommodate planned growth — are now in layoff mode, accounting for nearly half of the 3.9 million square feet of available space in the subleasing market, data shows. from CBRE. Insurance and law firms also offer space for subletting. According to CBRE, there are 19 blocks over 50,000 square feet — 14 of which belong to technology companies — that are listed for sublease.
As for companies potentially looking for new space, leaders are bidding their time unless they are forced to make a real estate decision due to the expiration of a lease, said Suzanne Duca, CBRE research director for New England.
“There’s just a structural change in the way we work,” Duca said. “We are starting to see those implications now. . . What has become clear is that the flexibility component is not going anywhere.”
A major lease that closed in the fourth quarter saw Medtronic take up 113,000 square feet at 10-20 Channel Center in Fort Point, a site that JLL research found vacant for five years. Matt Daniels, who heads the firm’s New England brokerage business, said he expects deals for shorter lease terms — five to seven years rather than 10 years or more — as companies collect data on how their workplaces function effectively in a hybrid world.
“A lot of these companies just don’t know how they’re going to operate on an ongoing basis,” Daniels said. “‘How does this work? Will I lose my company’s culture?’ That is not determined in a day.”
The slowdown is most apparent in downtown, where seven out of 10 buildings are at least 10 percent vacant, Colliers data shows. Much of the leasing activity expected in the coming months will come from companies with expiring lease terms, rather than new growth.
And big deals seem rare. There are almost no companies looking for more than 100,000 square feet right now, following a spate of big deals last year for blue-chip companies such as Eaton Vance, HarbourVest and McKinsey & Co. By contrast, in 2019, there were 21 tenants looking for more than 100,000 square feet or more, Newmark data shows. The company expects some larger lease requirements to come this year, Berthelette said.
One sign of hope, researchers say, is that the diversity of Boston’s economy gives the city a stronger foundation than others that are more concentrated in specific industries.
“Boston always recovers, I think, much faster than many other markets in the country,” Duca said. “That’s because of the makeup of everything that’s here. We kind of take it for granted sometimes, because it’s just our ecosystem, and it’s what we live and breathe every day, but it’s really a huge benefit to the economy here.