As Boston prepares to offer incentives for office-to-residential conversions, a new report confirmed still-rising vacancies in the city’s office stock.
Over 21 percent of office space in Boston is now available, brokerage Colliers reported, including more than 27 percent of the class B office market.
Mayor Michelle Wu announced Monday the city will offer tax breaks to office building owners to encourage residential conversions. The pilot program is scheduled to begin accepting applications this fall.
Office leasing activity has failed to keep pace with expirations and record sublease listings, and tenants have an upper hand against landlords in negotiations with 13.8 million square feet of space to choose from. During the second quarter, the Boston office market had nearly 800,000 square feet of negative absorption, bringing the 2023 total to over 2 million square feet.
“Widespread availabilities and generous concession packages make this a great time to be a tenant in Boston,” the report by Colliers researchers Jeff Myers and Kelly Doonan states.
The 19.7 percent vacancy rate across Greater Boston is now higher than the peak during the Great Recession, according to Colliers data, after having risen for six consecutive quarters.
Although average asking rents in Boston increased slightly to $64.78 per square foot, effective rents are declining because of more generous tenant improvement allowances.
Boston’s new incentives program will discount the residential property tax rate – currently $10.88 per $1,000 of assessed value – by 75 percent for qualifying projects. To qualify, projects will be required to comply with enhanced affordability and sustainability regulations.
Cities across North America have been experimenting with incentives ranging from tax breaks to direct payments and zoning density bonuses as strategies to encourage office-to-housing conversions.
Vacancies are still rising in Cambridge’s office market, while tenants are favoring higher-end properties in the suburbs.
The citywide vacancy rate in Cambridge hit 14.8 percent, the highest in over a decade. Sublease offerings have increased the availability rate by more than 900,000 square feet over the past five quarters.
In the 107-million-square-foot suburban market, the current 19.3 percent availability rate is only slightly above historical averages and now is lower than Boston’s, Colliers noted.
