Demand for office space in Boston is still a fraction of what it was pre-pandemic, according to a new analysis from real estate software company VTS.
VTS tracks and analyzes office tour requirements from potential tenants in major cities across the US, and found demand in Boston in July fell 26 percent from the month prior and remains 34 percent below rates before the COVID-19 pandemic sparked a broader embrace of remote work. Nationally, VTS’ office demand index dropped 17.5 percent in July to its lowest level since February 2021.
“We’re used to seeing demand for office space cool in summer months, but not at this rate,” said Nick Romito, CEO of VTS, in a statement. “Unique to 2022 is an economic outlook that is continually shifting, and is likely contributing to a reduction in new office demand, as uncertainty causes some potential tenants to delay or reconsider their current office space needs.”
The Federal Reserve hiking its benchmark interest rate to the highest level since 2018 — in an effort to combat inflation — has a particular impact on markets with a heavier concentration of office tenants in the finance, insurance, and real estate industries, VTS says, including Boston, Chicago, and New York. But on the flip side, there were strong national job growth figures in July — including in office-using industries like financial and professional services. The US economy also added 315,000 jobs in August, with professional and business services leading the increase.
“There’s a lot of mixed signals in the economy these days,” said Jeff Myers, research director at real estate brokerage Colliers in Boston, noting both concerns in interest rate hikes and inflation along with stronger job figures.
That growth in office-using jobs implies a growth in need for office space, Myers said. While there are some companies that are examining their real estate footprints and determining that they don’t need as much space as they did before COVID-19, there are others — such as InterSystems, SimpliSafe, and Amazon — that have kept growing in the city.
“There’s a really interesting mixed bag,” Myers said. “At the end of the day, we’ll see where we shake out. It could be that we continue to see a slowing of the market given some of the macroeconomic headwinds.”
In Boston, higher-end Class A buildings are performing more strongly than Class B properties, Myers said. There’s more Class B space available to lease than at any point in the past 20 years.
Class A buildings had a midyear vacancy rate of 13.2 percent — a little, but not much, above the historic average of 11.8 percent. Class B buildings, meanwhile, had midyear vacancy rates of 22.3 percent, he said — almost nine percentage points above the historical average of 13.5 percent.
“Quality is certainly capturing tenancy this cycle,” he said.
Catherine Carlock can be reached at catherine.carlock@globe.com. Follow her on Twitter @bycathcarlock.
Read More: Boston’s office market softening as economy wobbles – The Boston Globe