By Aaron Jodka | March 2017
Waltham is often considered the barometer of the suburban office market. And for good reason: It offers close proximity to the cities of Cambridge and Boston and can tap into a deep labor shed in the suburbs. Premier product and new retail amenities have attracted tenant demand, which has cut direct vacancy rates by more than half from early 2010 levels. Direct vacancies ended 2016 at 9.6%, their lowest level since the fourth quarter of 2007. However, this masks changes in underlying fundamentals.
Total vacancies ended the year at 16.5%, up from 15.2% the prior year. Why? Competitive sublease spaces have entered the market. In fact, sublease space in 2016 totaled 817,000 SF, a 300,000 SF increase from 2015. The last time so much sublease space was on the market was in 2003, when Waltham was still recovering from the aftermath of the dot-com bust. The accompanying chart highlights these changing fundamentals. The dark blue portion depicts direct vacancy, while the lighter blue shows the rising sublease vacancy.
Does this indicate the end of the ride for Waltham? No. Class A buildings are pushing rents into the high $30s to low $40s/SF, and Class B buildings continue to hold rents in the high $20s/SF to low $30s. In aggregate, direct rents rose 4.5% in 2016, ending the year at $33.37/SF. Despite the increase in sublease spaces, those rents rose as well. The market is anxiously awaiting the delivery of Post, at 200 Smith Street. It’s expected to set the bar for rents on repositioned assets and could be a harbinger of future market conditions.