The most counterintuitive idea in Boston commercial real estate right now: the office market isn't over-supplied. It's under-demolished.
That argument came from market leaders at Bisnow's Boston Office and Workplace event on May 19, held at the Blue Sky Center in Burlington. Q1 2026 vacancy ticked up to 18.5% — a number that, taken at face value, looks like a market still in trouble. But Cushman & Wakefield's own data shows that eight of Boston's 19 office submarkets either held steady or improved in the quarter. Class A absorption has been positive for two straight quarters. The 7.6 million square feet of leasing activity in 2025 was the highest since 2022.
So why is the headline number still rising?
Because Boston has a stock problem, not a demand problem. And until somebody starts swinging wrecking balls, the citywide vacancy rate is going to keep looking worse than the actual market.
The math nobody wants to put in a press release
Boston has roughly 70 million square feet of office space downtown and across the inner suburbs. A meaningful share of that — brokers privately estimate 15–25% — sits in pre-1990 buildings with floorplates, ceiling heights, and HVAC systems that no tenant in 2026 actually wants. These aren't buildings that need a renovation. They need a different building.
The data backs this up. Park Square Building at 31 St. James Ave., a Back Bay tower last assessed at $119 million, sold for $95 million at auction in March when the lender foreclosed. A Burlington office building traded on May 20 for one-third of its previous sale price. The Old South Building, built between 1902 and 1904, is being pitched as what would be Boston's largest office-to-residential conversion yet — because, in the city's own words, it's "predominantly vacant, reflecting a shift in downtown office demand."
These are buildings that the market has already written off. They just haven't been physically removed from inventory yet, so they keep dragging the vacancy rate up.
Why conversion isn't fast enough
Boston has leaned hard into office-to-residential conversion. The city's program offers tax incentives, expedited permitting, and design flexibility. The November 2025 downtown rezoning explicitly disincentivizes new office development in favor of housing, and allows towers up to 700 feet in certain zones to make residential pencil out.
It's working, sort of. Multiple projects are in motion. But conversion has structural limits:
- Floorplates matter. Most pre-1980 office buildings have deep, dark interiors with limited window access — fine for cubicle farms, terrible for apartments where every unit needs light.
- Plumbing matters more. Office buildings have a couple of bathroom cores per floor. Apartments need plumbing to every unit. Retrofitting that costs $200–400 per square foot before you've added a single finish.
- The math only works at the top and bottom. Class A trophy buildings convert because the rents support the cost. Distressed Class C buildings convert because the basis is so low it forgives the construction premium. The big stuck middle — 1970s and 80s Class B towers — often pencils out to neither.
So a lot of these buildings can't be converted economically. Which leaves one option: demolish them and build something new.
What the "more demolition" argument actually implies
If you take the executives at the Bisnow event at their word, here's what they're really saying about the Boston market over the next 36 months:
1. Headline vacancy will stay ugly for a while. Even if leasing activity stays strong, the obsolete stock won't get re-leased. It'll just sit empty, then eventually get torn down or converted. The vacancy rate is a lagging indicator of a transition that's already underway.
2. Trophy assets will outperform the index dramatically. Newer Class A buildings — think 1 Federal Street's renovation, the Seaport's newer construction, the South Station Tower — are seeing genuine pricing power. Flight to quality isn't a phase. It's the entire market now.
3. There's a discounted-basis play in Class B distressed. Not for everyone, but the Burlington one-third-of-prior-price trade tells you what the market is willing to pay for obsolete stock. Buyers who can underwrite for full residential conversion, demolition, or repositioning to medical/life sciences ancillary use are getting historic basis points.
4. The city's tax base needs this to happen fast. A Boston Policy Institute report last year warned that commercial real estate value collapse could cost the city $1.7 billion over the next several years. Commercial property taxes are roughly 71% of Boston's $4.8 billion budget. The longer obsolete buildings sit on the rolls at depressed valuations, the worse the fiscal hit. The city has every incentive to accelerate conversions and demolitions.
What to watch over the next year
The leading indicators won't be vacancy or absorption — those are too noisy. Watch instead for:
- Permits filed for office demolition (versus office construction). When this ratio flips meaningfully, you'll know the market has accepted what the brokers are quietly saying.
- Land sales where the office building is treated as a liability. A building that trades for less than its land value tells you the structure is worth negative dollars.
- Conversion projects getting financed. Synergy's Old South Building deal is the test case. If it pencils, expect a wave.
- Tax appeals from commercial owners. A flood of successful commercial appeals would force Boston to either raise residential rates or accept a budget crunch — both politically expensive.
The takeaway for buyers, sellers, and investors is the same: stop reading the citywide vacancy rate. It's an average across two completely different markets — one healthy and one obsolete — and it tells you nothing about either.
The real Boston office market in 2026 is binary. It's either Class A trophy or it's a teardown. Everything in between is in the process of becoming one or the other.