Boston’s Warehouse, Office and Life Sciences Sectors Experience Slowdown in Leasing Activity in 2023

Boston, MA – Cushman & Wakefield, a leading global real estate services firm, today released its fourth quarter 2023 industrial and office statistics for Greater Boston, showing an overall slowdown in leasing activity in the warehouse, office and life sciences sectors.

“Overall leasing activity declined slightly year-over-year, but Boston’s warehouse market was overall healthy throughout 2023,” said Riley McMullan, Senior Manager, Boston Research. “The surplus of high-quality space on the market continued to put upward pressure on rental rates, as the market’s overall average asking rent climbed 1.2% quarter-over-quarter.”

Greater Boston’s warehouse market posted nearly 4.4 million square feet (msf) of leasing activity in 2023, a decrease of just 2% year-over-year (YOY) compared to a 22.8% decrease over the same period in 2021-2022. The 495 Belt again captured the largest share of activity, accounting for 86.8% of new demand.

Looking at the development pipeline, more than 3.9 msf of new warehouse/distribution product delivered in 2023. However, leasing in new developments experienced a decline from previous years, with just 24% of new inventory being leased in 2023. Despite increasing 150 basis points YOY, Greater Boston’s warehouse/distribution market recorded its first quarterly drop in vacancy since mid-2021, falling 30 basis points during the fourth quarter to 8.7%. Meanwhile, rental rates continued to rise, climbing 1.2% quarter-over-quarter to $15.14 per square foot (psf).

“This was the first quarter since Q4 2020 that new demand in Boston’s office leasing market failed to eclipse the 1 msf mark, which can partially be attributed to occupiers shrinking their footprints. However, we continue to see bright spots within Class A, amenitized buildings. In contrast to recent trends, Boston’s Downtown recorded a slight decrease in vacancy, while suburban markets posted an increase, suggesting that market fundamentals may have begun to level out,” added McMullan.

Fourth quarter office leasing activity in Greater Boston totaled 800,000 sf, propelling year-to-date demand to 5.5 msf, a 47.2% decrease over 2022’s total, which is partially attributed to tenants’ shrinking footprints, with the average size of a new lease signed in 2023 totaling 8,790 sf, down from 11,463 sf in 2022.

Greater Boston’s overall vacancy rate ended the year 380 basis points higher than where it began. After spiking each quarter throughout 2023, vacancy remained stable quarter-over-quarter, rising a modest 10 basis points to 15.1%. Subleases continued to comprise nearly one quarter of total available space in the market in Greater Boston, totaling 10 msf of availabilities, with similar ratios for both Downtown and Suburban clusters.

“As the historic demand that fueled the recent record-breaking bout of development in Boston’s life sciences market has waned, construction starts have begun to slow, which will allow market conditions to normalize in coming quarters as supply and demand are re-balanced,” said Vice Chair Connor Barnes, who leads the firm’s New England Life Sciences practice. “While overall leasing activity experienced a slowdown in the fourth quarter, various submarkets, such as East Cambridge and the 128 Belt, experienced sustained demand throughout the year.

Leasing activity in Greater Boston’s life sciences market also experienced a slowdown, with new demand totaling just under 300,000 sf during the fourth quarter, marking the third consecutive quarter that new leasing activity didn’t surpass 500,000 sf. This brought the market’s year-to-date leasing total to 2.1 msf, 69.3% of which was concentrated in Cambridge and towns in the 128 Belt. Over the year, 128 Central led the market in 2023, posting more than 515,000 sf of leasing activity, a 5.3% increase over the next highest submarket, East Cambridge.

The market hit a new historical high for construction deliveries in 2023, as nearly 6.7 msf of new lab inventory was delivered, 62.2% of which remains available. With the significant number of new deliveries in 2023, nearly 25% of Greater Boston’s life sciences inventory is currently available for lease, marking the first time in recorded history that availability has surpassed 20%. The increase in availability was geographically widespread, as each of the market’s five clusters recorded a quarter-over-quarter increase of at least 250 basis points.