Boston-based Synergy Investments paid $45 million for One Liberty Square in September 2023, a 17 percent decline from its last sale in 2013. Photo courtesy of Google Maps
Class B office space in Boston backs a considerable number of mortgages set to mature between 2023 to 2026, but at a lower rate than many other metro areas in the country.
In a report by commercial real estate data firm CommercialEdge, around 16.3 percent of class B properties in Boston – 237 loans on 20.6 million square feet of office space—are set to mature by 2023 to 2026.
CommercialEdge cited in the report that weak office fundamentals and the high interest rate environment have made investors and lenders averse to office assets. And in Boston, while class A buildings have retained high occupancy levels, nearly 30 percent of class B space in the city’s downtown is vacant, according to Colliers research. Downtown Boston class B rents have also started to decline slightly, according to CBRE data, and now average $55.25 per square foot.
On the national level, loans on 19.4 percent of office properties, equivalent to 1.3 billion square feet of office space, will reach maturity between 2023 and 2026. Of the total class B office loans, around 18 percent covering 592.2 million square feet of space are maturing by the end of 2026.
“While the spike in office mortgage delinquencies will depend on a host of factors, Class B assets are in greater danger of defaulting due to due to the ongoing flight-to-quality trend that favors Class A spaces. As a result, Class B properties are facing an uphill battle in attracting tenants and maintaining competitive rental rates,” the report stated.
Boston has a lower percentage of maturing Class B office loan portfolios relative to most other metro areas. The cities with the highest percentage of soon-to-mature class B loans are Atlanta (29.8 percent); Pittsburg, (25 percent) and tech-driven metros Denver and Seattle (26.1 percent).
In terms of volume of space mortgaged under maturing class B office loans, Washington, D.C. topped the list with 348 loans equal to 31 million square feet of space, followed by Los Angeles (398 loans, 27.48 million square feet ), and Manhattan (220 loans, 25.2 million square feet).
