The flight-to-quality continues to be a major theme within the region. The pipeline for projects under construction has dropped to a 10-year low leading to higher rents in the most desirable areas like the South End. This constraint on supply will continue to push rents and force tenants to carefully consider office utilization.
Conversely, product built prior to 2010 is suffering from record vacancy due to the lack of amenities and functional obsolescence. While vacancy in these buildings continues to climb, the delta between asset class market rates have not dropped enough to justify choosing lower-class buildings over a higher-quality asset. Still, even if a tenant desires occupancy within these buildings’ lender covenants can restrict the financial terms being offered to earn their tenancy. Significant rent movement will likely not occur until new ownership can acquire assets at a lower basis and can underwrite deals with new financial terms.
We expect these same trends for both larger and smaller tenants to continue well into 2024.
Download the full report to learn more.