During this economic cycle, Boston has enjoyed a solid and steady recovery and has been in expansionary mode for more than two years. However, this cycle has been different in terms of its effects on office space in the CBD than the previous ones, and the latest JLL Skyline highlights that Boston is entering yet another stage of health.
“Between 2010 and 2012, firms were still reeling from the Great Recession hangover and were conservative value seekers; CEOs wanted to increase space efficiency and decrease expenses,” said Ben Heller, Managing Director of JLL’s Boston brokerage team. The pain was primarily felt in the Boston’s CBD low-rise market, where the vacancy had reached 16 percent. A recalibration in tenant make-up was taking place: for each financial firm that was shedding space, a number of high-tech firms were popping up. People wanted value and took advantage of those spaces that were in the mid-$20s in rent, as the Class B space was getting leased first.
By 2014, all the “value space” had been leased. The low-rise space in Class A towers was also leased as the spread between value space and Class A low-rise space evaporated. In rents, the mid-$40s replaced the mid-$20s. Firms switched their focus from expense control to talent retention. The low-rise vacancy rate hit 8.3 percent and pressure on rents started moving up the building.
This brings us to today. “We’re entering a new phase in this cycle – the phase where demand for high rise is here in a big way; the phase where CEOs say, ‘A downtown tower is the right fit for our growth, culture and organization,'” added Heller.
The data is starting to show just this. According to the JLL 2015 Digital Skyline, the average high-rise rates jumped almost 7 percent in the last six months alone, compared to 1.1 percent for the low-rise space. “This spike in high-rise rents is a phase in the recovery we have been anticipating,” concludes Heller. That phase appears to finally be upon Boston.