Boston, USA - September 13, 2017: people enjoy shopping in the pedestrian zone at Washington street at night.

Boston's Downtown Crossing shopping district at night. Downtown Boston’s pedestrian activity is rebounding to the highest levels since the beginning of the pandemic, but office tenants’ trial-and-error approach to gauging future real estate needs continues to dampen leasing activity and drive up vacancies.

A network of 14 electronic sensors that monitor pedestrian volume confirms that the 34-block area of offices, condominiums, theaters and restaurants in the Downtown Boston Business Improvement District is returning to a semblance of its pre-pandemic vitality. 

During the summer, weekly foot traffic averaged 730,000 visitors to the district, a 35 percent uptick over 2021, and peaked in mid-September at nearly 814,000 visitors. 

“As people return to the office, shopping and theaters, we’ve had a really steady increase,” said Anita Lauricella, senior planner for the Downtown Boston BID. 

New in-office work requirements by some major employers are contributing to the uptick in feet on the street, while the BID and city officials are coordinating special events to support retailers’ and restaurants’ fortunes. 

But the city’s 66 million-square-foot office market has yet to benefit from the revival in activity this year, as leasing activity has tailed off and double-digit vacancies continue to rise. 

“We are definitely seeing that slow bleed,” said Thomas LaSalvia, director of economic research for Moody’s Analytics. “This is what we expect over the next few years, to be honest.” 

After outperforming most U.S. metros in 2021, Boston’s office market has taken a step back in 2022. Direct vacancies, which don’t include sublease availabilities, have risen 1.5 percent since January and now stand at 14.3 percent, according to Moody’s Analytics. 

Private equity fund manager HarbourVest’s relocation to 250,000 square feet at 1 Lincoln St. was a rare post-pandemic example of an existing downtown office tenant opting to lease more space than its previous commitment. Other major leases signed in the past two years, such as Eaton Vance’s recently-executed 283,000-square-foot lease at One Post Office Square, involved downsizing from the previous address. 

The uncertain level of demand among potential tenants reflects companies’ “trial-and-error” uncertainty about gauging their real estate needs in the hybrid work era, LaSalvia said. 

Smaller Suites Offered in Big Projects 

Two downtown office landlords with big availabilities are being flexible in their leasing strategies, offering space on a floor-by-floor basis for two skyscrapers currently under construction. 

The $1.3 billion Winthrop Center office-condominium tower at 115 Federal St. has approximately half of its 812,000 square feet of office space still available, with completion scheduled for the first half of 2023. 

Joseph Larkin, a partner with MP Boston, said the developer is willing to lease spaces as small as 10,000 square feet in the world’s largest office building designed to energy-saving Passive House standards. 

Boston downtown streets at sunset - Lincoln Street

Some of Boston’s largest office tenants have updated their policies in recent months with more explicit guidelines requiring a minimum number of days for in-office work.

“It breaks up really nicely for smaller spaces, and there’s an ecosystem that’s starting to develop,” said Larkin, whose firm has already leased portions of the building to consultants McKinsey and financial services companies Income Research + Management and Cambridge Assoc. “This building is forward-thinking, and forward-thinking companies are gravitating to it.” 

Houston-based Hines, developer of the South Station office-condominium tower, is offering single-floor leases as construction proceeds in anticipation of a 2025 completion and it seeks its first tenant. The project includes over 700,000 square feet of office space. 

Some Experiment with Hybrid Changes 

While acknowledging a long-term shift to hybrid work, some of Boston’s largest office tenants have updated their policies in recent months with more explicit guidelines on in-office work. 

In September, Fidelity Investments began requiring office-based employees to work in the office a minimum of three days during one week per month assigned for their work group. 

“This future way of working blends the best of both onsite and offsite work. It is grounded in flexibility, providing associates with the time they need to work offsite while maximizing time onsite together – creating new ways to thrive at work while balancing work and life needs,” spokesman Michael Aalto said in an email. 

But John Hancock Financial Services has scaled back its in-office requirements this year from three days per week to two, partly in response to feedback from employee surveys. 

“We’ve seen our approach of designating core in-office days has made it easier for us to optimize our in-office time or make travel plans to visit other offices, which is why we’ve designated Tuesday and Wednesday as our core days,” spokeswoman Julie Law said in a statement. 

Software company PTC, which relocated its headquarters from Needham to a brand-new office tower in Boston’s Seaport District in 2019, set a guideline of employees working at the office two to three days a week beginning in April. 

Putnam Investments, which anchors the 100 Federal St. tower in the Financial District, is continuing its existing policy of requiring in-office work three days per week, spokesman Jon Goldstein said. 

Steve Adams

City Surveying Storefront Availabilities 

Mayor Michelle Wu has sought to support downtown landlords and tenants with a variety of strategies, including financial support to small businesses. 

The city’s Office of Economic Opportunity and Inclusion this month will begin accepting applications for $9 million in grants to retail tenants. 

Segun Idowu, Boston’s chief of economic opportunity and inclusion, said the grants will be spread across a variety of neighborhoods including downtown, Back Bay, the Seaport and outlying neighborhoods. The city is currently surveying landlords to identify vacant spaces and match them with grant recipients, he said. 

“Rather than put the onus on the entrepreneur, we’d much rather work with landlords to say, ‘We know you want consistent revenues, so let’s make sure this space is available for these types of businesses,’” Idowu said. 

As Downtown Reawakens, Landlords Slow to Benefit

by Steve Adams time to read: 4 min