What's Next for Boston Office Space?
As Boston’s COVID-19 situation constantly transforms, experts in the commercial real estate industry are fielding questions on what's next for the city’s office market. Just a couple of months ago, the industry seemed almost bulletproof. Today, it’s much more unstable and vulnerable as companies lay off employees and explore ways to cut operational costs. Since real estate is a considerable expense on the balance sheet, it’s not surprising that many believe there will be an impact. Here’s a forecast of some issues the industry may face:
Increased Sublease Space
It's likely that many companies will not have a need for as much office space as they previously did. Subleases have already begun to flood the market and will continue to come to market as companies look to shed some of their now excess office space. As a result, companies who have leases expiring in the next six to eighteen months can expect a greater number of options to choose from at discounted rates.
Many landlords across the city are working with their tenants to provide some type of rental relief for their tenants who are in need. With April 1 behind us, May rent checks will be due soon, and we expect tenants will continue to seek rental relief from their landlords. This can come in a variety of forms, and your landlord’s ownership structure will play a role in what they are or are not willing to do. Honest, open and frequent communication are the keys to success.
Over time, tenants should expect to see some reduction in direct asking rents across the city. This will take time since tenant default and requests for rent relief vary widely from landlord to landlord, and while some have felt the impact right away, others will realize it several months from now. For tenants seeking rent relief, an increase in sublease activity and additional vacancy across the city will help bring prices off their cycle highs. As landlords continue to sit on vacancy longer than they’re used to, and as tenants secure available subleases and coworking space instead of direct space, landlords will be forced to be more aggressive to lure tenants and decrease their vacancy.
While companies and employees adjust to their new normal, it‘s worth recognizing that we will eventually be back to work in some capacity. Local governments will likely suggest guidelines to align proper reentry, but all companies should be thinking about what a return to work could look like. Considerations will include sanitation, office circulation and density, and employee health monitoring.
We recognize that all tenants’ situations are different and likely to rapidly change. Our team is here to help and has been doing so for tenants of all sizes and industries who are in need of guidance through the COVID-19 pandemic. Our consistent and tenant-focused approach to real estate allows us to be completely objective to our clients who have entrusted us to guide them through both good times and challenging times. If you have questions, please do not hesitate to reach out. Stay safe and healthy.