Boston’s 185 Franklin St., the headquarters of Verizon, could be the final destination of workers if the company gives up its space at 125 High St.
It initially was considered a welcome life preserver, but suddenly, the surge of sublease space is in danger of becoming an albatross for the Greater Boston office market.
With the region already awash in a number of recent openings due to troubles from dot-com companies, Verizon Communications is reportedly planning to hit downtown Boston with upwards of 350,000 square feet of sublease space. Across the river in Cambridge, meanwhile, technology woes have opened up huge gaps in what had been one of the tightest office markets in the country just six months ago.
According to Cushman & Wakefield, there is now 580,000 square feet of sublease space on the block in Cambridge, helping push the overall vacancy rate from a scant 2.3 percent at the end of 2000 to 9.4 percent today. Other brokers say the number may even be into double digits, reflecting an amazing turnaround of events since the start of the year for the 14.2 million-square-foot market.
Cushman & Wakefield Managing Director Mark Winters, a Cambridge specialist, acknowledged there has been a sizeable chunk of space returned to the city in the past 60 days. Cambridge Technology Partners has 47,000 square feet available at 8 Cambridge Center, and is rumored to be considering additional offerings, while Zentropy Partners has a 40,000-square-foot block available at One Cambridge Center. At 101 Main St., Perot Systems is peddling another 47,000 square feet.
Although Winters agreed there has been a large shift in the market in terms of supply, he also expressed confidence that the situation will not continue unchecked.
“We do not expect a continued rise in the vacancy rate,” he said, adding that the supply currently out there “is absorbable.”
“Cambridge has always been more resilient than other markets,” he said. “It’s still overall very healthy and always will be a healthy market.” The correction has helped bring rents to more normal levels as well, said Winters, given that rates spiked by as much as 75 percent during 2000, with the top deal reaching $71 per square foot.
Relocation Destination?
On the Verizon situation, spokesman Jack Hoey continued to deny last week that the company has made a final decision on emptying out most or all of the space it currently occupies at 125 High St., the 1.4 million-square-foot Boston office complex where it and its predecessors have operated since the twin-tower project opened in 1991. Industry sources have told Banker & Tradesman that Verizon is pushing ahead with the subleasing strategy in order to cut real estate costs, and has hired CB Richard Ellis/Whittier Partners to peddle the space. Verizon previously has subleased several floors in the complex, scoring a reported $89 per square foot for a 21,000-square-foot sublease. If so, that would be among the highest rates ever achieved in the Hub. Calls to CB/Whittier were not returned by press deadline.
Of concern to some Verizon employees at 125 High St. is where they will end up if the reports bear out. Hoey did not provide exact figures, but sources estimate that more than 1,000 employees would be uprooted from the effort, with one observer familiar with the plan maintaining that Verizon wants to relocate workers into properties the company owns outright. Although Verizon’s predecessor, New England Telephone, was one of the original investors in 125 High St., its ownership position was diluted when the towers came on line in the midst of a brutal recession and real estate crash.
Sources have said that an office in Waltham and Verizon’s headquarters at 185 Franklin St. in Boston are likely destinations for the workers if they are displaced, while one broker said Connecticut may also be on the radar screen for some functions. One veteran employee housed at 125 High St. expressed dismay at those options. The worker, who requested anonymity, said the move from downtown to the suburbs would be disruptive, but added that a relocation around the corner to 185 Franklin St. would not be welcomed, either.
Employees “are jammed in there already,” said the worker, who also maintained that 185 Franklin St. does not offer the amenities found at the modern 125 High St.
“It’s a miserable place,” the employee said of 185 Franklin St., citing a lack of windows, outmoded interiors and inefficient maintenance as leading detriments. While insisting that Verizon has yet to make a final decision, claiming “our toe is still in the water,” Hoey said the destination of any staffers who would be displaced is still undetermined.
“I really cannot get specific regarding potential locations outside of Boston,” said Hoey.
Steve Early of the Communications Workers of America District One, whose union represents Verizon workers, referred calls to the International Brotherhood of Electrical Workers Local 2222 because most of the employees at 125 High St. are in the latter union. The IBEW’s business agent did not return phone calls by Banker & Tradesman’s press deadline.
While he said that he is unfamiliar with the 125 High St. situation, Early added that the union has previously clashed with Verizon’s predecessors on the issue of relocating employees. Doing so can be disruptive, said Early, who claimed that “every few years there’s a new real estate strategy they pursue.”
“The trend has been that it’s usually at the expense of the worker,” Early said.
