Cambridge has long been a national technology hub, but over the past year the technology industry has become a drag on the office market.
Office demand from tech companies in Cambridge shrank by more than 85% from 2019 to the end of last year, according to CBRE's Q4 Cambridge Office Report.
This decline in demand came as technology employees transitioned to remote and hybrid work schedules and companies reduced their office footprints and put space on the market for sublease. As of year-end, 9.1% of Cambridge's 12.5 million square feet of office space was listed as available for sublease, the highest percentage of any Greater Boston submarket, according to CBRE.
InterSystems vacated 240,000 SF and Microsoft sublet 60,000 SF at One Memorial Drive in Cambridge.
“Cambridge's office market is in a downturn,'' said Connor Burns, vice chairman of Cushman & Wakefield. “This is one of the highest occupancy rates in the last 10 years. And part of that is certainly in the way people are using their offices post-COVID. Part of it is the contraction of the office market.”
According to CBRE research, Cambridge office tenants vacated 821,000 SF more than they rented in 2023, including a net absorption of 498,000 SF in the fourth quarter. This occupancy loss was concentrated in East Cambridge, where for the full year he recorded negative absorption of 700,000 SF.
Experts say Cambridge is at a disadvantage compared to Boston as its main users of office space, tech and life sciences companies, are shrinking their office space due to slower funding cycles. It is said that there is.
“We have a very diverse tenant base in our Boston office, including technology, biotech, financial services, hedge funds and law firms,” Burns said. “Cambridge is primarily technology and biotech companies. If you look at the types of deals and the companies that do business in Boston, in most cases those companies don't exist in Cambridge.”
According to CBRE, nine companies put at least 45,000 SF on the sublease market in the fourth quarter. According to a report in the Boston Business Journal, Biogen has put 114,000 SF of its headquarters at 225 Binney Street up for sale. According to CBRE, Microsoft also put his 60K SF on the sublease market at 650K SF One Memorial Drive.
Adrian Mendoza, co-founder of venture capital firm Mendoza Ventures, said smaller tech startups are also reevaluating their office needs and seeking space back to achieve profitability.
“With every startup, we really start thinking, 'Do we need to spend that money? Can we cut costs and stay lean?'” Mendoza said.
Mendoza said many tech companies have the opportunity to exit leases as pre-pandemic contract deadlines approach.
“We're going downhill again. Everyone who had a five-year lease in 2019 and 2020 will finally be letting go of their space,” he said.
CIC's flagship store is located at One Broadway Street in Kendall Square.
Other high-tech and biotech companies that have offered space in the Cambridge sublease market include Akamai Technologies, which is headquartered at 145 Broadway Street, as well as Bristol-Myers Squibb and Takeda Pharmaceuticals, according to Colliers' quarterly report. This includes industry.
According to CBRE, office availability in Cambridge increased by 400 basis points in the last quarter. One reason for this is that InterSystems, a healthcare software and data management company, is vacating 240,000 SF at One Memorial Drive to move into HYM Investment Group's One Congress building in Boston. .
Venture capital funding is down in the region, with the Boston Globe reporting that 816 startups raised $16 billion in 2023, a 26% decrease from the previous year. It is said that Mendoza said he believes the market could recover this year. He expects more technology companies to return to offices later this year, but they will demand far less space than before.
“There are companies looking for space,” Mendoza said. “The coworking aspect is still going on. Nobody wants anything over 10,000 SF.”
Stacey Messier, general manager of coworking operator CIC's New England office, said the coworking space at 245 Main St. at One Broadway and Kendall Square is seeing activity as tenants downsize from traditional offices. said to be becoming more active.
“Our new prospects who are cruising this space are like, 'We're just looking for a solution to that. How can we find something a little less risky?'” Messier said. said.
Experts said they were optimistic that Cambridge's office market would recover, in part due to low inventory due to office-to-lab conversion projects and a lack of new development in the city.
The only new addition to the market is Leggatt McCall's redevelopment of the Edward J. Sullivan Courthouse and Prison at 40 Thorndike, which will bring 422,000 square feet of office to east Cambridge.
“We believe in the local office market as much as we believe in the lab market,” C&W's Burns said. “It's okay. We're just in a lull of sorts.”