Boston in recent years has been a market driven by the tech industry. The talent pool in and around Boston has attracted many tech firms, start-ups, and venture capital groups and has had a large impact on the state of the real estate market. These new tech-driven firms have helped push vacancy down and rents up, supporting strong growth quarter after quarter. Tech companies in Boston tend to occupy Class B office space, which has spurred strong growth in the Class B market, with 50% market rent growth in this cycle. Class B market rents have been observed to move closely with the NASDAQ stock index, which is built strategically around four complementary business segments – Tech, Trade, Intel and List. That primarily explains the strength of Class B rent growth in and around the city.
The chart below maps NASDAQ index value and Boston Class B rent back to 1988. Going back over nearly three decades shows just how in sync the NASDAQ and the Class B market are. The correlation between the two is .82, meaning that when one moves the other is, historically, likely to follow. The chart shows that changes in the index value tend to lead movements in Class B rent by several quarters. Knowing this time delay and based upon recent movements of the NASDAQ, it appears that Class B rents have yet to hit their peak in this cycle and continue to have room to run as the NASDAQ continues its strong performance.