Well-ventilated class A office buildings will have an advantage recruiting tenants in 2022 amid headwinds from hybrid work models.
The Boston metro’s office, industrial and life science markets are poised for growth in 2022. While macro-related risks certainly loom given the ongoing pandemic and its many side effects, the worst of the cycle appears to be in the past, and tenants will be filling space across property types.
Office vacancies will enter the new year elevated; however, several indicators point to future demand gains. The number of office-using jobs has recovered to pre-COVID levels, and a record amount of venture capital is flowing to local companies. Both conditions suggest a need and ability for firms to occupy office space.
In Boston, the available sublease space has already begun to shrink, and Colliers International is tracking tenants actively seeking 5 million square feet in the market, 17 of which need more than 50,000 square feet. The number of workers commuting to offices will increase in 2022, even as alternative work arrangements persist as a headwind to absorption.
High-quality buildings will continue to win out. Only a couple of 500,000-square-foot-plus multi-tenant office buildings delivered over the past decade in the downtown core. However, the next generation of class A space will start to come online in 2022 in the form of new ground-up or renovated towers. Leasing in new properties will gain strength as tenants seek out well-ventilated, ESG-conscious buildings with plenty of amenities.
Expansion of the local life science sector could have a positive impact on the office market as firms in that industry grow alongside their customer base. Office fundamentals will also benefit from lab conversions, which will force traditional office tenants to consolidate into a smaller number of buildings.
Life Sciences Flush with Cash
Boston has firmly established itself as a world-class life science hub, and its prominence will climb in 2022 as more companies set up shop. More than $20 billion will have flowed into Massachusetts-based biotechnology company coffers in 2021 through public and private fundraising sources. This influx of capital, an indicator of future demand growth for lab and cGMP space throughout the metro, is a major component of the nearly 12 million square feet of active demand Colliers is tracking.
Landlord-friendly vacancy rates and rising rent levels will persist into the new year and continue to induce developers to feature life science in their projects. Owners of many underutilized non-life science assets are trying to get in on the action too. Across the metro, Colliers is tracking 10 million square feet of office and industrial space in the conversion pipeline, projects that could allow developers to get to market more quickly than ground-up endeavors.
Next year promises to be the biggest year on record for lab/cGMP deliveries, as several million square feet are set to complete. Much of this space is in heavily committed projects in Boston and Cambridge, such as the 900,000 square feet being built for Sanofi at Cambridge Crossing. Leasing in new product often represents new growth in the market and in 2022, could help boost overall net absorption well above this year’s level.
National Retailers Enter Industrial Market
Fundamentals should continue their positive decade-long run into 2022 as the ongoing reconfiguration of supply-chain logistics boosts demand for local storage and distribution space. Vacancies will remain concentrated in older product, and space in new buildings will be absorbed by new market entrants or existing tenants that may be expanding their footprints. Long a locally oriented industrial market, Boston is now attracting national retailers such as Walmart, Home Depot and Target, each looking for at least 1 million square feet here. These kinds of requirements have contributed to record levels of tenant demand.
Jeff Myers
The low vacancy rate will allow landlords to continue to push rents in 2022 and help make the case for new development: industrial rents have increased by 60 percent over the past five years. The Interstate 95 South submarket will be a hotspot for deliveries next year. Like the office market situation, life science conversion potential is factoring into investors’ decisions, as demand and rents for cGMP space are high.
As in 2020–2021, Amazon will be one of the primary drivers of new absorption in 2022 as it moves into new facilities. Most notably this includes completion of what will be one of the largest commercial structures in Massachusetts — a 5-story, 3.8 million-square-foot e-commerce, storage, warehouse, and distribution facility in North Andover.
Jeff Myers is research director in Boston for Colliers International.
