Financial institutions’ space decisions will have a significant effect on the Boston office market in 2015, as three companies that are major tenants narrow down their future options.
Financial service companies now comprise 18 percent of the Class A office market in downtown Boston, down 8.7 from the pre-recession peak, according to JLL’s 2015 Banking and Finance Outlook report.
“The story for Boston in the next year is certainly our biggest tenants in the market are financial service companies,” said Lisa Strope, New England research manager for JLL.
Industry-wide, large financial institutions continue to seek cost savings in real estate by shrinking front offices. Part of the space reductions reflect job reductions for analysts, traders and investment bankers, although back office divisions have grown in response to new legal, regulatory and security requirements, the JLL report noted.
At the same time, banks continue to move employees into smaller workspaces, with the industry average now 150 square feet per employee, down from 225 square feet in 2009.
In another cost-cutting strategy, many banks are choosing to relocate offices. Only 25 percent of the financial services office deals tracked by JLL in 2014 were lease renewals, while 46 percent were relocations.
That trend is likely to continue in Boston, with three major financial institutions responsible for 33 percent of the total active requirements in the market. But the result likely will be a net decrease in occupied space.
Putnam Investments and Wells Fargo are in the market for 280,000 and 220,000 square feet, respectively, while BNY Mellon is seeking to downsize to 350,000 square feet. And available build-to-suit parcels in the Seaport District provide competition to existing office towers in the Financial District.
The emerging financial technology sector offers a potential source of tenant growth, JLL predicts. The number of companies in the sector increased 26 percent in 2014, primarily in global hubs such as London, New York and Silicon Valley.
