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Erosion Occurring in Boston Industry Clustering

As companies explore more of the region, industry clustering in Boston is breaking down a bit. Limited availability and spiking rents have forced many industries such as biotech, banking, and the legal sector to look outside their “comfort zones.”

Vacancy in much of Cambridge is less than 5.0% and core alternative submarkets such as the Financial District and Waltham in Route 128 have seen vacancy dip to less than 10.0%. Asking rents for lab space in Kendall Square and view space in the Back Bay these locations have been exceeding $80.00/sf. Tenants are routinely encountering offers exceeding $65 and $70 in Cambridge and Back Bay, the low to mid-$50s for quality space in Financial District and the low to mid-$40s in Waltham. The industry base is becoming heterogeneous in the Financial District and Waltham, mirroring the situation which had until now been most common in the Back Bay. Non-profits and smaller professional/business services firms such as architects, for example, have in some cases been pushed out of the Financial District.

Class A Financial District Buildings with 100,000 Available Square Feet

Click for Space Availability Details

Data via CoStar as of 5/3/2016

Some tenants are not straying far, though, from their home base as they move within their traditional submarkets. Putnam Investments, for example, announced earlier this year that it would shift its Boston headquarters to 100 Federal Street in 2018. The firm has more than 800 employees just a few blocks away at 1 Post Office Square and another 700 in Andover. Putnam has been at prior location One Post Office since 1978 – so even though they are not moving that far, it is their first move in nearly four decades. The company expects to eventually house up to 1,000 employees at 100 Federal Street. As companies such as Putnam lease up space in the Financial District, the supply of quality blocks of larger space continues to tighten.

The erosion of industry clustering in Boston underscores how nimble many tenants have become in this increasingly tight and challenging market. Competition for space as well as for talent comes at a growing cost. While there is a feeling that rental rate growth, particularly in the most overheated submarkets, may be approaching its peak, there is not as much certainty that rent will fall in the next four to six quarters.


Posted by:

Keith DeCoster

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Posted by:

Steve Woodworth

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