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Office vacancy rate downtown continues to rise
By adamg on Tue, 10/10/2023 - 9:49am
Boston Real Estate Times reports that 18.4% of downtown office space was vacant in the most recent quarter. Citing a Cushman & Wakefield Report, though, the site says demand for Boston-area industrial space remains strong and that life-sciences space also saw an uptick in demand.
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Comments
"Computer, enhance image"
The vital statistic that's missing is a comparison between Class A and Class B office stock.
The story I've been hearing is mostly that it's the Class B that's really gut punching Boston - the older and decrepit office stock is unrentable and is dragging down all these statistics compared to the newer Class A offices.
Which is still a big problem. But the doom and gloom of a Total Collapse seems less founded when you consider that Boston has a lot of old, cramped, really outdated office spaces downtown. Maybe this will be good financial motivation to see those undesirable offices replaced, upgraded, or converted to residential.
Undesireable offices downtown
Are too expensive to convert to residential , even with tax cuts, and some floor plate sizes aren't a good fit for resi conversions. And the acquisition costs are a big hurdle to overcome. Maybe if current owners give banks back the keys the numbers will be closer to working but someone ends up losing money and it's likely to be passed on the the residents of Boston. So in a few years we may see Boston residential taxes go up, which currently if you have a residential exemption is a great deal, and keeping many middle class families in the city.
I would like to see some converted to educational uses. I'm not sure about the math behind that use though for primary or secondary and college level or adult ed?
Thanks for your thoughts
I've been thinking the same thing. We're looking for a single family house and although we orginally wanted to stay in JP, we're focused on the Burbs.
No point in paying similar property taxes just to spend more on schools if you don't win the BPS lotto. The nice commute isn't worth it.
It's three factors: Vacancy, rents, rates
Vacancies are obviously very bad for a landlord (and indirectly for the city) but they're not all.
All of these buildings are leveraged, purchased at prices based on pre-pandemic rents and low single digit rates, and many of them are on floating rate paper.
These all have overlapping feedback loops as rising rates make buildings less profitable which pushes down values which increases risk which causes rates to go up more which causes building owners to get more desperate and cut rates.
At this point I bet a lot of class A buildings are in the "extend and pretend" phase with a ticking clock while hoping for a favorable correction in rents and/or rates. That didn't come fast enough to save the owners of 200 Clarendon in 2008, which proves that you can be the creme de la creme of Class A and still find yourself bouncing off the bottom of the sea.
Play
stupid games, win stupid prizes. Just the pigeons coming home to roost. I root for our city, but the working class can't be alone in feeling the consequences. Bring the pain until the mofos go to the dentist. Pain is a teacher.
These vacant buildings in
These vacant buildings in downtown Boston should be leased out to the Government to house the migrants that are already overloading the hotels in Boston.
I thought the same thing
Have the State buy the buildings at market rate, keeping the loss on paper, and holding up property tax rates.
The best you can do with these older buildings is dormitory housing, so it would be a good use of the space and would encourage the migrants to find better accommodations once they adapt and find work.
No
They're not suitable for housing.
Explain
Explain.
Would worn out strip malls in AlmostVermont do better?
I think it depends on the building
The NYT actually did a good overview of this: https://www.nytimes.com/interactive/2023/03/11/upshot/office-conversions...
Basically, as I understand it, the problem is with newer buildings built after A/C that don't have enough windows to produce usable spaces. It's still possible, but a lot harder and a lot more expensive.
Purpose
That's fine if you're talking about a renovation into saleable housing units.
What they're commenting on is the state's mandatory shelter law. I don't know what's guaranteed in that, but if the communal bathroom of an office building worked, then quickly converting the offices into dorm-style rooms could potentially satisfy housing anyone seeking shelter until they can find something else. The law doesn't say everyone gets a window.
Still not suitable
Those buildings may have communal toilets and sinks but I suspect it's pretty rare to have showers.
I'm a bit confused here
Who are you pointing to as the cause of this problem who you think is also feeling the consequences? Downtown real estate developers who built office buildings when there was demand for it, or someone else?
Be careful what you wish for.
Remember the financial crisis of 15 years ago that was precipitated by a bunch of bad loans on assets (home mortgages) that ended up not being worth what people thought they were worth? That could be coming for the commercial lending space and it could take down several large regional banks with exposure to those loans.
That pain won't just be confined to the fat cats.
Better than most, though
Boston’s office vacancy rate is still a lot lower than most cities in the US.
Think it’s the best?
The natural CRE cycle was already slowing in 2019. Better to be lucky than good.