Completion of the South Station tower in 2025 will deliver nearly 800,000 square feet of office space, the last major office project in Boston to break ground in the post-COVID era. Photo by Steve Adams | Banker & Tradesman Staff

Is 2025 the year of the Boston office comeback?

With vacancy rates high since the pandemic, talks in recent years centered around how much of an office market would Boston have for the foreseeable future – and if alternative uses like office-to-residential conversions made more sense in the new era of remote work.

But heading into 2025, there seems to be an ever-so-slight aura of optimism regarding Boston’s office environment.

Companies are increasingly adding more in-office requirements to the work week after years of hybrid and remote work. Notably, Amazon, which maintains a large office presence in Boston’s Seaport neighborhood, is requiring employees to be in the office five days a week starting early next year. Boston’s office vacancy rates declined for the first time in five years during the third quarter of this year, according to JLL’s Boston Q3 Office Outlook report.

Further, the Urban Land Institute has Boston on its top 10 real estate markets to watch in the coming year alongside Sun Belt boom towns like Nashville, Atlanta and Dallas.

Is it time for Boston office brokers to start busting out the champagne bottles? Maybe not quite yet, but there are signs to be more optimistic heading into 2025.

“I don’t think it would be inappropriate to say it’s the beginning of a small breeze in the sails,” said Mark Fallon, director of research and strategy at Hunneman. “But I’m definitely hesitant about calling it all up from here. It’s just so dicey.”

It’s early days, but there are signs of sublease listings dropping off, Fallon added. There are other positive factors, including certainty around the presidential election results as well as easing monetary policy from the Fed slowly reducing interest rates.

A Leading Indicator in Return to Office?

A Placer.ai data report cited by JLL notes that Boston saw the largest share of workers return to the office of any major market in the U.S. over the last four quarters. That’s driven a 10.3 percent increase in office attendance in Boston, according to Placer.ai.

But despite the strong data points, it’s important to remember Boston is still grappling with high office vacancies: Direct office vacancies were at 17.3 percent at the end of the third quarter while total vacancies were at 21.7 percent, according to JLL.

One key metric indicates that the city of Boston office market may have reached a bottom. According to JLL data, positive absorption of nearly 520,000 square feet represented the biggest increase since mid-2018.

While Urban Land Institute lists Boston on its top 10 of real estate markets to watch, that distinction is partially due to the region’s variety of building types and not just the office market. But the region’s urban core, from Back Bay to the waterfront and Seaport, does make it a particularly attractive option amid the ongoing “flight to quality” narrative in the office environment today.

Placer.ai data shows Boston saw the largest share of workers return to the office of any major market in the U.S. over the last four quarters. iStock photo

“We’re not starting from zero,” said Michelle Landers, executive director of ULI’s Boston and New England chapter. “We’re not a pure financial market like some of the other really struggling cities. There’s vibrancy on the street. It’s a great place to be. We have some of the most talented workforce in the entire world, which is always going to be a benefit and an attraction to companies that want to locate here.”

Landers points to Lego’s plan to move its Americas office from Connecticut to 1001 Boylston St. in the Back Bay beginning next spring, as well as Hasbro’s exploration of moving its longtime Rhode Island headquarters to Boston, as proof of lasting strength in the local market.

“The benefits that Boston will always have are our educated workforce [and] our really high quality of life,” Landers said. “The trick is: How do you get people to see commuting five days a week as kind of a reasonable demand for a job?”

Some employers appear to be navigating this with a so-called “flight to quality” to newer, class A office towers like One Congress and Winthrop Center. Class A product in the urban core also comes with more surrounding amenities like access to bars, restaurants and shopping found in the city’s hottest neighborhoods like the Back Bay and the Seaport.

Tenants Still Can Drive Hard Bargains

Cost-saving deals can be had: Direct class A rents downtown declined 4.6 percent since their peak in the fourth quarter of 2019, according to Cresa’s third-quarter market report. But don’t bank on getting a bargain on an office with an uninterrupted harbor view.

“For tenants that are willing to sacrifice views, you can move into a class A tower that’s highly amenitized at a sort of pretty aggressive rate, with a healthy tenant improvement package and a healthy free rent package,” said Andrew Orpik, a principal at Cresa Boston.

Bargains in terms of rent and concession packages can come to those willing to park in a low- or mid-rise office. But the longstanding rule of “the higher the floor, the heftier the rent” still stands today, as high-rise vacancy rates remain low, Orpik said.

So what do the tea leaves say for the broader office climate in the city?

“It feels like there’s definitely some level of leasing momentum,” Orpik said. “2025 will sort of be a telling year for how much momentum there is. But it does feel as though, from an office occupancy standpoint, that there is reason for people to feel good about occupancy levels continuing to increase.”