Boston Suburbs Drawing More Office Tenants as Downtown Wanes

Image courtesy of Avison Young

Declining rents and shorter employee commutes are prompting eastern Massachusetts companies to favor suburban office deals while urban Boston activity wanes, according to local brokerage research.

Office leasing in the Routes 128 and 495 submarkets comprised nearly 59 percent of all Greater Boston transactions in the second quarter, according to Avison Young. Boston and Cambridge’s share of leasing totaled 41.2 percent, down from nearly 50 percent in the previous quarter.

Without providing specific data, JLL said the suburban office tenant demand has rebounded to 2022 levels, pointing to future stabilization of the market. The bulk of the activity is mid-sized requirements of approximately 15,000 square feet, said Matt Daniels, JLL’s New England brokerage lead.

“There’s a combination of urban and suburban tenants and organic demand that’s been in the market,” Daniels said. “We are going to see a lot of medium-size leasing to get the numbers back to where they were.”

Declining rents and shorter employee commutes are prompting tenants to favor suburban properties, according to Avison Young. Across Greater Boston, office tenants signed 1.4 million square feet of leases in the second quarter, up 100,000 square feet from the previous quarter.

Boston Mayor Michelle Wu’s proposal to increase the commercial property sector’s share of the city’s tax levy has prompted warnings from real estate industry groups that it would provide more incentives for suburban office leasing in the post-pandemic climate.

The home rule petition, approved by the Boston City Council in June, requires approval of the state Legislature to exceed the maximum commercial-residential tax split allowed under Massachusetts law.

Boston’s 19.4 percent office vacancy rate is now higher than the Route 128 submarket, which ended the second quarter with a 17.3 percent vacancy rate, according to Avison Young’s second-quarter report. The Route 495 submarket had a 20.4 percent vacancy rate.

The availability rate, which includes sublease listings, was 24.7 percent in Boston, the highest of all Greater Boston submarkets.

According to CBRE data, suburban office leasing totaled nearly 882,000 square feet, an increase of 250,000 square feet from the previous quarter.

But the 106-million-square-foot suburban market still had nearly 410,000 square feet of negative absorption, reflecting factors such as expiring leases. The vacancy rate rose 0.7 percent from the previous quarter to 19.2 percent, while availabilities rose 0.6 percent to 24 percent, according to CBRE.