Conditions continue to soften in the Boston market. After a record-setting decline in Q2, absorption struggled again in Q3, when overall negative net absorption of 1.3 million SF sent the vacancy rate up to 12.6%, its highest rate since Q1 2013. Sublease space has flooded the market, adding a net 630,000 SF in the quarter. This marks the most sublease space ever added to the market in a two-quarter period of time, topping the figure in the early 2000s recession. Meanwhile, rents have begun to weaken, though only slightly, with Class B declining less than 1% in Q3.
Vacancies barely budged in the third quarter, up to 4.5%, and rents softened slightly. However, given the low vacancy rates, any change in direct vacancy can have an outsized impact on rent levels. As Boston and the suburbs held flat, that is the likely outcome in Cambridge as well. New development, which is highly preleased, has yet to come on the market, and new projects have recently been announced. Tenants continue to look to Cambridge for expansion, as seen by Bristol-Myers Squibb’s recent deal at Cambridge Crossing.
Suburban absorption took a sharp turn down in the third quarter, by negative 1.5 million SF, the first quarter with such losses since the first quarter of 2009. These losses were widespread in markets, except 128 South, supported by the completion of two build-to-suit projects for Meketa and Citizens Bank, and Tufts’ purchase of the former Reebok campus, dubbed The Block. Both direct and sublease space increased, after holding steady at midyear. Vacancies are back to 17.2%, reminiscent of early 2018 levels.