Speculative office construction will break out in Greater Boston in 2015 and office rents in Cambridge could set all-time highs in the next two years, industry executives predict.
Demand from expanding tech companies and single-digit vacancy rates continue to be the story of the Cambridge market, with Kendall Square remaining the epicenter of the tech cluster, but renewed investment and leasing activity for office and lab space in Alewife.
“Companies are saying, ‘We need to be here and we’ll pay what it takes to be near MIT,” said Mark Winters, an executive director at Cushman & Wakefield.
Winters spoke at commercial real estate group NAIOP Massachusetts’ annual market forecast Wednesday. Banker & Tradesman was the media sponsor of the event, held at the Renaissance Boston Waterfront Hotel.
In Kendall Square, rents have caught up to previous highs in the $72-per-square-foot range set in 2001 and 2007, and could hit the mid-$90s within two years, Winters predicted. More upward pressure on rents is expected with tech leaders Google and Amazon looking to expand within the market.
In downtown Boston, the office market continues to recover from the 2008 downturn because of an expanding tech sector and relocations of companies from Cambridge and the suburbs. Recent acquisitions of trophy office towers in Boston and Cambridge reflect the continuing interest of foreign investors seeking higher yields than government bonds, panelists said. In 2015, office investment sales are expected to slow, but overseas investors will continue to put money to work in Greater Boston, said Jessica Hughes, a managing director for JLL.
“2015 is going to be a very different year,” Hughes said. “[The] money coming in for development, a lot of it is going to be speculative and a lot of it is going to come from China and other Asian markets. This is across sectors: everything from residential and condos to new spec office development.”
In the suburbs, the core Route 128 market continues to benefit from large build-to-suit projects, including Boston Properties’ 230,000-square-foot CityPoint property in Waltham, anchored by the new headquarters of shoe company Wolverine Worldwide.
Major tenants require city-like amenities at suburban properties, driving demand for build-to-suit and repositioning projects, said John Boyle, a principal at Cassidy Turley.
There are currently 56 tenants looking for 2.3 million square feet in the suburban office market, most of them preferring modern spaces. Half of the available office spaces larger than 50,000 square feet were built before 1990.
“It has to be improved if the building has aged,” Boyle said.
