The Northeast Commercial Real Estate Market and its Key Cities

In this article, you'll learn:

• The Northeast CRE market is adjusting to migrations toward lower-cost regions.
• Key cities like Syracuse, Hartford, and Philadelphia showcase unique market conditions.
• Tenant representatives are crucial for navigating the Northeast CRE complexities.

The Northeast CRE market is a stronghold, a region star-studded by notable and influential cities. But in recent years, there has been a massive migration away from this region for greener (mostly Southern) pastures where businesses can ease the effects of high taxes, high cost of living, and stricter regulations. 

Still, the Northeast region promises unmatched connectivity and booming industry for corporate tenants to be apart of. And, the exodus has opened up new pockets of opportunity for tenants looking to scoop up space in this market.  

We have examined the most notable cities in the region that represent its key sectors. We’ll dive deeper into the following cities and their data to discuss greater trends at play, and opportunities tenants have in this critical region.  

• Syracuse, New York
  
• Hartford, Connecticut  
• Providence, Rhode Island 
• Boston, Mass 
• Philadelphia, Pennsylvania
• New York, New York

Syracuse, New York   

To represent the notoriously exciting Upstate New York commercial real estate market we have Syracuse. It is worth mentioning that Upstate New York is home to other notable cities including Rochester, Buffalo, and Albany. 

Syracuse, New York should be attractive to commercial tenants because of several indicators of a healthy and expanding market. Office rents in the Syracuse market have been steadily rising at an annual rate of 1.8% during the first quarter of 2023 and have posted an average annual gain of 1.3% over the past three years. 

Additionally, there has been a modest expansion of the inventory with 43,000 square feet delivered over the past three years and 27,000 square feet currently underway. While vacancies have slightly increased over the past four quarters, they are still basically in line with the 10-year average as of 2023Q1. 

Furthermore, the metro area has seen employment increase at an annual rate of 2.5%, with a gain of about 7,800 jobs. It is a positive result indicator of a stable and growing job market in the area. Stationing your CRE near emerging talent bases is one of the smartest things a CRE professional can do. Learn How to Use Your CRE to Become More Competitive in the War for Talent.  

• Personal Income Tax – 10.90% 
• Combined Sales Tax (City, County, and State) – 8.00% 
• Corporate Income Tax - 7.25%

Overall, commercial tenants can benefit from the promising market conditions in Syracuse, NY, including reasonable office rents, inventory expansion, and a growing job market. Tenants can secure favorable lease terms and find suitable office space in a stable and growing market. 

Hartford, Connecticut 

Going north, we have Hartford, Connecticut. We would be remiss not to mention Connecticut’s influence in the Northeast CRE market. Hartford has historically been known as a hub for insurance companies. 

There are both pros and cons to basing commercial real estate in Hartford, Connecticut. One of the advantages is that the overall office market in Hartford has been stable in 2023. The year-over-year asking rent movement is positive, and there is currently around 130,000 SF underway, representing about 0.2% of the current inventory.  

Additionally, Hartford's Class A space is occupied by the area's prominent hedge fund class and other top-end financial firms, which may provide networking and collaboration opportunities. Class A space, primarily occupied by these firms, can rent for up to $30 psf.  

However, vacancy expanded quickly in January, and availability is following suit. This usually makes it easier to find the right space at the right price. The evolving labor market combined with a slowdown in office-using employment sectors amid recessionary fears could also pose challenges for companies seeking to recruit and retain talent. Office-using employment has contracted at an average annual rate of -0.6% over the past five years, compared to a 1.6% average increase nationally, resulting in a total loss of about 2,700 office jobs over that timeframe. 

• Personal Income Tax – 6.99% 
• Combined Sales Tax (City, County, and State) – 6.35% 
• Corporate Income Tax - 7.50% 

If you're looking for new office space in Hartford or anywhere else for that matter, you need to be prepared. Learn the methods and considerations that will land you with the best office lease, terms, and price in the free course below.

Providence, Rhode Island

On the positive side, the third largest city in the Northeast has vacancy rates in line with its five-year average, and there is only a small amount of new development underway. This indicates a relatively stable and predictable market for CRE in the foreseeable future. 

Additionally, there has been a consistent removal of outdated office space from the market, which has driven up the overall quality of available options while cutting fat in the vacancy rate. 

However, it's important to note that vacancies may not tell the whole story of market conditions.

Providence has some of the highest corporate real estate taxes in the country, which could make it an unreasonable expense for some tenants to lease office space. Many of the largest tenants in the area are untaxed entities such as schools and government agencies, which may limit the availability of high-quality commercial real estate for private businesses. Additionally, the presence of many universities in the area could create competition for space and drive up rental prices.

• Personal Income Tax – 5.99% 
• Combined Sales Tax (City, County, and State) – 7.00% 
• Corporate Income Tax - 7.00% 

Boston, Massachusetts 

Even further North, we have Boston. Boston's commercial real estate market has historically been a strong and reliable choice for commercial tenants. Even in the face of the COVID-19 pandemic, the market has shown remarkable resilience and consistency. This is evidenced by the fact that leasing activity has only decreased by 10% since the pre-pandemic levels. Additionally, Boston is home to some of the largest leases in the city's history, which indicates a level of confidence from both tenants and investors. 

However, it's important for commercial tenants to be aware of potential downsides to the market as well. While availability rates for office space have remained relatively stable, there is a significant amount of sublease space on the market, particularly in submarkets such as the Financial District, the Seaport, Back Bay, and Waltham. This could lead to downward pressure on rental rates in those areas, which could be a benefit for tenants looking for affordable space. 

Furthermore, while the market is currently strong and prices are high, there is still some uncertainty surrounding the potential for recession in the near future. This could lead to a slowdown in leasing activity and a shift in the balance of power between landlords and tenants. As such, it's important for commercial tenants to carefully consider their options and negotiate favorable lease terms that provide flexibility in case market conditions change. 

Overall, Boston remains an attractive option for commercial tenants, particularly those in the life sciences and technology sectors. However, it's important to carefully evaluate the market and understand the potential risks before making any leasing decisions. 

• Personal Income Tax – 5.00% 
• Combined Sales Tax (City, County, and State) – 8.25% 
• Corporate Income Tax- 8.00%

Philadelphia, Pennsylvania 

Moving Southeast from Boston, we have to take a look at Philly. Although the fourth quarter of 2022 saw the lowest levels of leasing volumes for Philadelphia since the height of the pandemic in 2020, its CRE market shows promise.  

And despite nationwide post-pandemic struggles, Philadelphia has among the lowest vacancy and availability rates among the top 15 markets, at 10.4% and 14.5%, respectively, second only to Boston.  

The central business district consistently posts lower vacancies than the national average, with only a 5% increase in vacancy since 2019, bringing it in line with the national vacancy of 12.8% and availability rate of 16.1%. 

Still worth mentioning in relation to Philly is the city’s high taxes, which alone, could make you think twice before starting a new business or relocating there.  

• Personal Income Tax – 3.07% 
• Combined Sales Tax (City, County, and State) – 11.87% 
• Corporate Income Tax - 9.99% 

Perhaps negated by the reasonable cost of living for a metro hub which remains among the national average. Low living costs are translated to the going office rent, with Class A properties available for a reasonable price.  

New York, New York  

Maybe as a Long Island company we’re biased, but we saved the most notable (and polarizing) city for last. As a corporate tenant considering the New York City real estate market, it's important to understand both the positives and negatives.  

While there has been an improvement in annual leasing activity in 2022 and strong demand for high-quality office buildings, office utilization is still significantly below pre-pandemic levels due to remote and hybrid work arrangements. This has resulted in an elevated availability rate of 16.1%, higher than the pre-pandemic level of 11%. Moreover, with 13.6 million SF of office projects currently under construction, vacancy levels are expected to remain high. 

An abundance of commercial properties has transformed the NYC market to a highly tenant-favored environment. Corporate tenants have been able to drive harder deals, slashing rent expenses and receiving more generous concessions. This is part of the reason why New York, NY had its strongest office leasing month in January of 2023 since December of 2019.  

Still, year-over-year rental growth remains at 0.3%. Therefore, rents are not expected to rise significantly in the coming years. Demand for office space has greatly been placed on premium buildings where rent reaches $300 per square foot. Learn more about the Manhattan CRE Rent Crisis. 

Ultimately, corporate tenants in New York City must consider the benefits of a tenant-friendly market against the potential challenges of high vacancy rates and the ongoing impact of remote work on office utilization. 

• Personal Income Tax – 14.41% 
• Combined Sales Tax (City, County, and State) – 8.88% 
• Corporate Income Tax- 7.25%

 Visualize the Tax Rates Across the Northeast

Note the difference in personal income, sales, and corporate income taxes in key cities throughout the Northeast. Note that tax data has been rounded. 

Relocate with a Tenant Rep  

While the Northeast CRE market has experienced a significant migration away from the region in recent years, there are still many promising opportunities for corporate tenants. The exodus has created new pockets of opportunity for tenants seeking space in this market. From Syracuse to Boston, Hartford to Philadelphia, and New York City, each city offers unique advantages and disadvantages for commercial tenants to consider.

From reasonable office rents and growing job markets to stable leasing activity, the region provides a  landscape for corporate tenants to explore. By carefully evaluating the market and understanding the potential risks and benefits, commercial tenants can make informed decisions and secure favorable lease terms for their optimal office space. 

Ultimately, a tenant representative can help corporate tenants take advantage of the opportunities presented by the Northeast CRE market or any other region by providing expert guidance and support throughout the leasing process. With their help, tenants can secure favorable lease terms, find the ideal office space, and position themselves for success in an ever-evolving commercial real estate landscape. 

But not all tenant representatives are created equally. True Tenant Reps™ only represent tenants, and can leverage their specific needs and preferences, including the type of space required, the desired location, and the budget to the fullest extent. True Tenant Reps™ at iOptimize Realty^® are empowered to find our clients the best terms, prices, and properties for their interests. Reach out today to start saving  up to 30% of your CRE costs and 90% of your time.