Greatland Realty Partners’ planned conversion of a vacant office park in Weston into a three-building, 340,000-square-foot life science complex illustrates suburban office properties’ ability to adapt to changing real estate demand. Image courtesy of Gensler
Suburban Boston office landlords will head into the new year with more options to keep their properties generating income, while Boston and Cambridge owners face growing headwinds.
Boston’s office market has recorded nearly 1.1 million square feet of negative absorption in 2022, according to Colliers International research. The urban market’s vulnerability is reflected in flagging demand for class B office properties, where availability rates now top 20 percent in both Boston and Cambridge.
The urban office market faces multiple challenges in 2023, according to industry executives. The persistence of hybrid work has prompted many tenants to downsize office space requirements as lease expirations approach. Recent layoffs in tech and life science have driven record listings of sublease space. Traffic congestion and questions about the MBTA’s safety and reliability are factoring into tenant decisions on transit-dependent properties.
“You have a lot of people who live in the suburbs who aren’t taking public transit into the city right now, and are choosing to work a little bit closer to home,” said Matt Daniels, New England brokerage lead for JLL Boston.
Suburban Repositioning Gets Results
That’s created an opportunity for suburban office landlords. With their larger land sites and expansive building floor plates, they have more options than their downtown counterparts to reposition properties and reflect current demand.
Obsolete office buildings can be demolished and replaced with biomanufacturing, warehouse or multifamily projects. Older buildings can be updated to accommodate lab, flex and R&D tenants.
The suburban market has nearly 787,000 square feet of positive absorption through the end of September, according to Colliers, with an availability rate of 17 percent.
Greatland Realty Partners is executing a turnaround strategy for a vacant office park at 9-20 Riverside Road in Weston, recently obtaining $150 million in financing for a 340,000-square-foot life science campus. The firm recently completed the lease-up of an office-to-lab conversion called Revolution Labs totaling 180,000 square feet in Lexington.
Duffy Properties has modernized more than 400,000 square feet of flex and R&D space at the 1.1 million-square-foot Waverley Oaks Park in Waltham in recent years to attract researchers such as Veo Robotics, which relocated from Cambridge.
The flex portfolio is fully leased, reflecting the steady demand from medical and robotics companies, CEO Robert Duffy said. Duffy Properties added amenities such as Mighty Squirrel Brewing Co. and provides shuttles to the MBTA Red Line and commuter rail to cater to tenants with younger and urban workforces.
Such upgrades and diversifying the mix of uses is looking more prescient in the current climate.
“In general, for office space, the requirements are consolidating,” JLL’s Daniels said. “The way tenants are using their space is different, and they’re putting in more conference and event space and fewer cubes in their buildouts.”
SmartBear Software is one local tech company that’s still in growth mode and committing to in-person office work, recently leasing an additional 16,000 square feet at Somerville’s Assembly Row. The newly-renovated headquarters includes a gym and coffee bars along with meeting and collaborative spaces.
The company currently requires three days a week of office work for most employees, according to Chief People and Culture Officer Veronica Curran. The expanded 52,400-square-foot offices include dedicated spaces for hybrid employees. SmartBear calculates its space needs at 125 square feet per employee, which encompasses individual desk and collaboration spaces.
Rising Vacancies Likely in Boston and Cambridge
In Boston and Cambridge, another wave of potential layoffs in the tech and financial services industries would place more pressure on urban landlords, who already have seen demand decline in the hybrid work era.
After expanding in Boston and Cambridge amid fanfare in recent years, Amazon and Facebook are scaling back their workforces in belt-tightening that could affect their offices in the Seaport District and Kendall Square.
Steve Adams
In Cambridge, renowned for its miniscule vacancy rates throughout the past decade, cracks have appeared in the once-stable commercial real estate market as well. The availability rate approached 11 percent in late September, according to Colliers, driven partly by more than 700,000 square feet of sublease space.
Preliminary fourth-quarter data by brokerage Newmark indicates additional increases in sublease space in Boston and Cambridge, reflecting cutbacks by tenants in the technology, advertising, media and information sectors.
“The macroeconomic headwinds have taken over the narrative, and leasing has been limited outside of a few of the big deals that have landed,” said Liz Berthelette, director of research at Newmark in Boston. “There’s still uncertainty among corporate decision-makers surrounding the future of working in the office. Making long-term decisions in this environment, especially if we’re bearing down on a potential recession, will be difficult.”
