Two Market Reports Suggest a Turnaround in Boston's Office Market

Two new quarterly real estate reports give more reason to believe a turnaround is underway in the fortunes in the Boston area's office real estate market.

Demand for office space, which has been suppressed for five years, jumped 85% in the third quarter from the second quarter, according to the real estate software company VTS, whose report was released earlier this week. The firm’s office demand index for the Boston market, which helps compare cities to one another and over time, is at one of its highest levels since the pandemic began.

Boston’s office demand index for the third quarter fell below San Francisco and New York and slightly behind Seattle, but exceeded numbers for Chicago, Los Angeles and Washington, D.C.

The 85% quarter-to-quarter growth factors in particularly big leases announced during the time period. At the same time, the Boston area saw a year-to-year demand jump of 19%, according to VTS.

“This resurgence, powered by the city's core tech and legal industries, reflects a broader national trend of large occupiers strategically consolidating into a few select markets,” the report said.

Top third-quarter leases in the Boston area were led by Hasbro’s commitment to 265,000 square feet in the Seaport, a 200,000-square-foot renewal by BNY in the Financial District, and 178,000 square feet Arbella Insurance signed for in Quincy.

'Fresh momentum' for Boston's office market

Another report, from the real estate advisory firm Cresa released on Thursday, described the area’s real estate market as “showing fresh momentum.”

It was the first quarter in five years in which downtown Boston’s leasing activity was in positive territory, with new commitments exceeding those reducing or eliminating their space. In addition to BNY’s lease in the neighborhood, the investment firm KKR signed for 130,000 square feet at International Place.

Office vacancy in Boston was flat for the quarter at 19.6%, while Cambridge’s rate fell slightly to 17.8%, according to Cresa, which measured sublease availability separately.

Other data reported by Cresa indicated lingering challenges for landlords — or opportunities for tenants — when vacancies remain at higher levels.

Per-square-foot office lease rates have fallen roughly 6% in the last three years, and around 12% in Cambridge. Lab lease rates across the area, still often the highest in the country, have dropped more than 15%.