After another dynamic year in the Greater Boston office and lab market, we’re looking ahead to 2019. The three key markets of Boston, Cambridge, and Suburbs all have their own unique drivers and nuances, but similarities as well. 

In the Greater Boston market, lab is a major driver, while we’re also closely watching all development in the area. Higher-quality assets are winning out, and we don’t foresee that changing in the new year. Risks are emerging – a volatile stock market, inverting yield curves, and continued political and trade tensions – but Boston’s economy remains strong, setting 2019 up for another year of growth. Our team of market experts has highlighted the biggest trends and market movers to watch for over the next 12 months. 

Triple-Digit Rent Deal On The Horizon 

Tenant demand remains at record highs and investor interest continues to be strong, while developers have taken a measured approach to new projects. Tenants needing more than 300,000 square feet today have only one existing option to look at: 601 Congress St. Meanwhile, tenants in the 7,000-square-foot market have more than 60 buildings to choose from. Our urban team is monitoring these trends over the next 12 months, collectively predicting the following: 

• The lack of new deliveries will continue to put upward pressure on rents, particularly for Class A. These have already begun to outpace Class B for the first time in this cycle, which will continue in 2019. That will also lead to the first $100/per square foot lease deal in this real estate cycle. 
• Percent increases on rents will become widely accepted. Boston has always been a $1/square-foot/year- increase market on leases, but landlords are moving toward a 2.5 percent annual bump. The market is pushing back against that now, but landlords will get what they want. 
• Coworking is a new food group that already represents more than 2.4 percent of the Boston office market. Enterprise tenants are becoming a larger focus of groups such as WeWork. Enterprise tenants will continue to drive coworking in 2019, while new entrants, such as landlords, are looking for a piece of the action. 

Alewife Cluster Could Grow 

As hot as the Boston market is, Cambridge is on another plane. East Cambridge is essentially full, causing landlords to get creative to add new space to try to meet the market’s immense demand. This is not proving easy, and tenants are looking to other markets for their next deals. Our Cambridge specialists foresee the market to play out as follows in the coming year: 

• Rents, already at stratospheric levels, will continue to rise even higher. Tenants are signing deals years in advance to stay in Kendall. 
• Relief valves will come into focus, as developers and tenants need to create nearby clusters. A prime example is the area around Alewife, where redevelopment and rezoning could yield an alternative to Kendall. 
• Development continues. Boston Properties’ replacement of the MIT Coop and BioMed’s acquisition of the Constellation site will bring new product to space-starved Kendall. 

David Goodhue

Suburban Lab Space In Demand 

Boston’s suburbs have never had more tenancy: 102 million square feet of occupied space. Location makes a massive difference, as vacancies are higher along I-495 than on Route 128, while rents are lower along Boston’s second highway ring. An inventory of 123 million square feet in Boston’s suburbs is larger than that in Boston and Cambridge combined, making it an extremely diverse and dynamic geography, as our suburban specialists recognize in the following predictions: 

•  Lab demand will continue to outpace supply. New clusters emerging are further establishing themselves throughout the market. Tenants are looking north, south, and west for expansion. 
•  More office buildings will be converted to lab. Landlords want a piece of one of Greater Boston’s fastest-growing industries. Investors are confident about this type of conversion, but they aren’t expected to participate in larger-scale speculative ground-up office development. 
•  Landlords selectively or fully demolish assets, as land is worth more than buildings in a number of places. 

• Class A buildings will outperform, capturing the demand while earning outsized rent growth. 

 David Goodhue is executive managing director and Boston market leader for Colliers International.