Companies are offering 3.8 million square feet of sublease space in Boston’s central business district, a historic peak.

The fallout from the current health crisis continues to affect Greater Boston’s office market, with fundamentals wavering further during the third quarter of 2020. 

Following a third consecutive quarter of negative net absorption, metro-wide vacancies climbed 120 basis points over the quarter, to a seven-year high of 13.5 percent. While direct vacancies are on the rise, sublease inventories have more than doubled over the last six months. 

With more than 7 million square feet of excess space across the market (or 4 percent of current office inventory), availabilities have hit a 15-year high in Greater Boston. Comparatively, available sublease space topped out at 6.3 million square feet in 2009 during the Great Recession. Availabilities were higher than current levels, however, during the dotcom bust of the early 2000s as volatility in the technology sector drove up inventories.  

As a key measure of health within the office market, rising sublease space has accompanied each of the last three market corrections in Greater Boston. Continued insight into trends impacting the sublease market will prove vital to this metro’s recovery story. 

Big Availabilities Span Multiple Submarkets 

Following the end of the third quarter, office tenants continued to list additional sublease availabilities throughout Greater Boston, with current estimates now above 8 million square feet as of early November.  

Office subleases have risen across the board, but Boston’s CBD accounts for a significant portion of these new additions. At 3.8 million square feet, CBD sublease space now accounts for 5.7 percent of Boston’s total office inventory and represents a historical peak. Moreover, roughly 54 percent of the 5.4 million square feet of new additions at the metro level since early March was located in Boston.  

In Cambridge, nearly 750,000 square feet of office subleases were added to local availabilities and totals have now surpassed 1 million square feet or nearly 10 percent of the office inventory. Greater Boston’s suburban office markets are contending with far less sublease activity than Boston and Cambridge. There are only 3.5 million square feet of sublease space available throughout all of the suburban office markets, with roughly 49 percent coming online since the beginning of the pandemic.  

 There are more than a dozen submarkets within Greater Boston that boast over 200,000 square feet of sublease availabilities.  

Downtown Boston accounts for the largest share of space at roughly 1.9 million square feet as of early November – representing nearly half of all availabilities in the CBD. On a square footage basis, downtown is followed by the West – Route 128, East Cambridge and Back Bay submarkets. Large blocks of sublease space have also emerged in the Seaport, Fenway and Charlestown.  

The metro’s urban submarkets will likely continue to face the majority of additional sublease availabilities as remote work policies, potential de-densification trends and hesitancy in public transit usage favor suburban office occupancies. 

TAMI Troubles 

Though the retail, restaurant, travel, hospitality and entertainment industries have faced steeper headwinds as a result of COVID-19, Boston-based consumer-facing technology companies were among the first to experience layoffs and furloughs while most office workers transitioned to remote work scenarios due to government-issued stay-at-home advisories. Consequently, the TAMI (technology, advertising, media and information) sector has contributed more than 2.3 million square feet of new sublease availabilities throughout Greater Boston since early March. 

Elizabeth Berthelette

Not surprisingly, much of this space is located in the CBD as Boston remains one of the world’s preeminent technology hubs. Tech-related companies account for a large share of the available subleases in Cambridge and the West – Route 128 markets as well. Other industries contributing to the rising sublease inventories here include FIRE (finance, insurance and real estate), life sciences, business services and healthcare. 

The pace of new sublease additions appears to be slowing. Following a deluge of new space in September and October, a marked slowdown in activity characterized Greater Boston in early November. It remains unclear whether this abatement represents a temporary pause or is evidence that the market has reached its bottom.  

Looking ahead, however, it will take time to work through the overhang of available space within the Greater Boston office market, particularly as leasing velocity remains limited due to uncertainty in the marketplace. 

Elizabeth Berthelette is research director at Newmark Knight Frank in Boston.