The COVID-19 Pandemic has had a substantial impact on Boston’s commercial real estate market. Looking at the effect on rent rates, the impact has been felt more severely for retail space than for office space.
Retail rents in Boston sharply declined almost immediately upon the start of the Pandemic. However, they have already begun to rally and are projected to continue to do so. Noticeable in the chart below is how much greater the impact was felt in Boston compared with the National average.
RETAIL - MARKET RENT
Source: CoStar, Feb. 3, 2022
With the recent burst of activity in the market for retail space, we are seeing some interesting trends. Some of the industries we see out in the market for space right now:
Restaurants – Many in-town restaurants suffered greatly in 2020, with (temporary) mandatory closures and the disappearance of daily commuters forcing many out of business. We are beginning to see restaurants jockeying to relocate in these former restaurant locations (second generation space) – since the previous infrastructure is already in place, it can be much easier for the new operator. We are seeing a mix of the usual demand for smaller, quick service restaurant space, as well as some recent interest in larger, sit-down restaurant space.
Fitness – Small format fitness studios, like personal training studios and small class-based gyms, are very popular right now. Whether it’s due to people working (and snacking) from home, the fun environment of class-based workouts or a desire to stay out of big box gyms, small fitness operators seem to be on the rise.
Pet-Related Businesses – The pet industry experienced growth during the Pandemic, and there seems to be greater demand than ever for pet-related services in the City. From veterinarians to grooming salons, we are seeing operators out there looking for space.
Office rents did not experience the same level of decline as retail. While retail stores had no revenue if they were shutdown (forcing many out of business), many of the businesses leasing office space could continue paying the rent even if their employees were fully remote (such as technology companies, law offices, architects, etc.).
OFFICE - MARKET RENT
Source: CoStar, Feb. 3, 2022
Some trends we are seeing in the market for Boston office space:
Life Sciences/Lab Space - The Boston area is well-known for being a life science and biotechnology hub. With companies such as Moderna, Pfizer, Biogen, Genzyme and many others, we are seeing a push to increase the supply of lab space to keep up with demand.
Technology Companies - While many companies have adapted to the "work from home" shift caused by the Pandemic, we are starting to see companies contemplating their next office moves. At least in the near term, we will likely see some continuation of a work from home component to many companies' staffing structure - however, it is becoming more apparent that there is likely to be a continued physical office presence as well. Many employees do not want to work home alone ALL of the time - one of the perks at working at companies like DraftKings, Google and Wayfair are their cool and fun office environments.
Psychology/Therapy/Counseling Offices - The Pandemic has been stressful for everyone, and one of the effects has been a surge in demand for counseling. Many therapists have adapted to the times and are utilizing Telehealth as often as possible. However, there are situations where in-person sessions are necessary and/or Telehealth is impossible or impractical. We are seeing a mix of some therapy offices looking to shrink the office needs (due to increased reliance on Telehealth) while others are looking for additional or larger spaces.
Purchase Opportunities - Since office rents did not drop as much as many office renters hoped, more and more companies are looking at opportunities to buy their office space. Through favorable lending programs for small businesses, like loan programs through the Small Business Association (SBA), eligible companies are able to purchase properties for as little as a 10% down payment. We have helped several companies utilize these programs over the past few years.