After a stellar start this year, Boston’s vacancies increased in Q3. This third quarter lull has been rather typical of this economic cycle, and in most years, the third quarter has either continued a Q2 trend of negative absorption or posted weaker growth. Some of this is seasonality, with vacations over the summer months, but the pause should not sound alarm bells. In all, absorption was essentially flat. While absorption may have slowed, investors were very active, setting pricing records and keeping office properties trading with cap rates in the low-to-mid 4%s. Meanwhile, a number of large tenants are ready to transact, and rents continue to rise.
Once again vacancies have fallen in Cambridge. It’s hard to believe, given how tight the market has been, but in the combined office and lab market, vacancies ticked down 0.3 percentage point to 3.0% in the third quarter. The performances of office and lab are starting to diverge, particularly outside of East Cambridge. Tenants face tough challenges today. It is not uncommon for rents to double at lease renewal; add to that very little availability, and some employers are looking outside of Cambridge for their next lease deal.
Boston’s suburbs are on a winning streak. The third quarter marks the fifth straight quarter with positive absorption, tying with a previous run in this cycle. However, this five quarter run of 3.3 million SF of absorption is the best showing during that time frame. Absorption topped 700,000 SF in the quarter, sending vacancies down to 17.0%, one of the lowest tallies in a decade.