It was a quiet quarter on paper in downtown Boston. At just over 500,000 square feet YTD, absorption was down by over a million square feet compared to the same time last year. Out of context, this could lead one to believe the market is cooling. But this couldn’t be further from reality.
As we’ve seen since the beginning of the year, the spike in class B rents shows no sign of abating. With the exception of the Seaport (where class B rents were already over $40 PSF), class B asking rents have jumped an average of 30% in the past 9 months. And deals are being executed at these rates – which means that as long as demand remains consistent, rents will remain high.
And as long as sale prices remain high, so will rents. The most critical sale thus far this year (and in recent memory) is Ontario-based Oxford Properties’ pending purchase of 500 Boylston Street and 222 Berkeley Street in the Back Bay. With a total sale value of $1.3 billion – an average price of over $1,000 PSF – this is the highest price per square foot ever paid for a Boston building.
When the market heats up, speculative development is usually not far behind. And in the Seaport, it has begun. Skanska broke ground on the 415,000 SF 121 Seaport Boulevard in July while Tishman Speyer is scheduled to start on the 375,000 SF Pier 4 redevelopment this month.
The Rise of Government Center
One of the submarkets we’ve paid less attention to in the past year is Gov’t Center/North Station. While the North Station half of the equation has benefitted from the arrival of Converse’s new headquarters at Lovejoy Wharf, the Gov’t Center half has gone largely ignored. Until now.
Replacing Scollay Square in the early-1960s, Gov’t Center is renowned for its Brutalist (yes, really) architecture and the government agencies that love it. But at the beginning of the year, the FBI vacated 125,000 SF at Center Plaza – leaving behind an opportunity for new owner Shorenstein to attract growing technology companies to the neighborhood. In July, marketing app analytics firm Localytics committed to 55,000 SF on the third floor of 2 and 3 Center Plaza. While the architecture may be decidedly unhip, we expect this part of town to become anything but in the coming months.
Click here to download a PDF of Cushman & Wakefield’s Boston CBD Office Snapshot for Q3 2015.