National Development is marketing 80,000 square feet of tech space with access to a green roof deck at The District Burlington, a 13-building office park being updated with new restaurants and a 170-room Residence Inn by Marriott.
Burlington’s growing pockets of city-like amenities have cemented its popularity with mature tech companies that are comfortable committing to the Route 128 market.
Demandware, NetBrain Technologies and Citrix have signed leases confirming Burlington’s status as a tech cluster. But an uptick in sublease activity coupled with a steady construction pipeline in the core Route 128 market could mean lower rents for office tenants down the road.
Burlington has nearly 170,000 square feet of negative absorption in its office market in 2016, pushing the total availability rate above 20 percent, according to Cushman & Wakefield’s second-quarter office report. That hasn’t dampened the outlook for developers such as Nordblom Co., which is seeking final approvals for a 245,000-square-foot build-to-suit office building at 174 Middlesex Turnpike, and National Development, which is adding 80,000 square feet of tech space in The District Burlington. Gutierrez Co. is looking for an anchor tenant for 4 Burlington Woods, a 100,000-square-foot office building it built on spec.
Nordblom’s latest project, to be built on Fourth Avenue, is the next step in the repositioning of the 2.5-million-square-foot Northwest Park. After replacing aging office buildings with a dozen restaurants and retailers and a 180-room apartment complex named The Tremont, the upcoming phase includes a 147-room Archer Hotel and a 130,000-square-foot Lifetime Fitness Club.
The infusion of a retail corridor within the office park has had a symbiotic effect, said Todd Fremont-Smith, senior vice president at Nordblom Co. Office tenants like the proximity to shops and restaurants, translating into higher rents on lease renewals. And the retailers benefit from the foot traffic generated by office workers on lunch breaks and after-work get-togethers.
“Everyone’s walking and eating at the outdoor cafes. The restaurants are overflowing,” Fremont-Smith said.
The Nordblom project has competition from The District, where Newton-based National Development is partnering with AEW Capital Management and Charles River Realty Investors to reposition the former New England Executive Park. Some 80,000 square feet of collaborative office space in the park’s tallest building, 700 District Ave., is nearing completion in shell condition by October.
Spanning four stories with a green roof deck podium, the space is being offered in the low $40s range, according to Andrew Gallinaro, a senior vice president for National Development. The owners also are in talks with potential tenants for a 180,000-square-foot build-to-suit pad that is fully permitted.
“The one common theme in Burlington is a lot of technology-oriented tenants,” Gallinaro said. “We talk to a lot of tenants who say they are located in other suburban markets and are having challenges retaining and attracting top-quality talent and looking at Burlington as a way to achieve those goals.”
The current ownership group acquired the property in 2013 for $216 million and has added new tech tenants including Black Duck, Trillium Software and Ping Identity. A 268-seat Island Creek Oyster Bar will open in October, and construction recently began on a 170-room Residence Inn by Marriott owned by Finard Properties. Groundbreaking was delayed for most of the spring by a recently-dismissed lawsuit challenging the issuance of the building permit.
Reflecting reverse commuting patterns, a privately-funded shuttle bus service recently was launched providing eight daily trips direct from the park to the MBTA’s Alewife station.
Nordblom and National Development’s strategies reflect the preferences of suburban tenants for new construction throughout the core Route 128 office market stretching from Waltham to Burlington, said Brendan Carroll, director of intelligence at Boston-based Encompass Real Estate Strategy.
“The major driver of absorption in the last five years has been new product completions,” Carroll said.
Despite the rising availability rate, no vacant blocks over 200,000 square feet are available in Burlington, setting up opportunities for spec and build-to-suit projects. Tenants looking for class A space in the 50,000 to 100,000 square foot range have up to 14 properties to choose from, according to Encompass research.
A New Pin On The Map
The emphasis on walkable, amenities-driven properties should insulate Burlington from the sort of big swings in rents that it saw in previous real estate cycles, said Kerry Olson Hawkins, a first vice president at CBRE. In 2008, office rents tumbled from $42 to $18 per square foot in a year.
“There’s a huge change in the past 18 months with the retail amenities,” Hawkins said. “Its ability to recruit on a national scale has put a pin on the map for large companies, and a lot of tenants that can’t afford Cambridge are looking at Burlington.”
When Burlington-based e-commerce company Demandware approached a decision on a major office lease, it put a premium on retention of key personnel comfortable with their existing commutes. Relocation to Boston never entered the discussion, according to brokers. Instead, Demandware looked at locations from Waltham to the Route 495 North market before opting to expand from 100,000 to 181,680 square feet over the next five years at Piedmont Office Realty Trust’s 5 Wall St.
Burlington’s ability to attract life science companies in addition to traditional tech tenants could determine the limits of its commercial growth. According to brokers, two of the largest current requirements for commercial space in the Route 128 market are Ironwood Pharmaceuticals and Merrimack Pharmaceuticals, both of which are based in Cambridge but looking for at least 120,000 square feet in the suburbs for expansion.
Traditionally, life science users have looked to Lexington and Waltham first, although Burlington has made recent inroads in the sector.
Millipore Sigma, the life science arm of Merck KGaA, leased 280,000 square feet in a build-to-suit complex being developed by Gutierrez Cos. at 400 Wheeler Road. The complex will consolidate the workspace of 800 employees currently working at its Billerica, Waltham and Woburn locations. Such build-to-suit projects aren’t accounted for in absorption statistics because the space is occupied immediately upon completion.
Dyax Corp., which is based at 55 Network Drive in Northwest Park, was acquired by Irish pharmaceutical giant Shire earlier this year for $5.9 billion. Shire is expanding in Lexington, where it has more than 1 million square feet of office and lab space, and last week announced a 200,000-square-foot lease at Hobbs Brook Management’s 95 Hayden Ave. The future of the Burlington location was not immediately clear. And Oracle Corp. is in negotiations to renew its lease at Network Drive, where it recently put 73,000 square feet available for sublease.
Overall, 13 new subleases totaling 320,000 square feet came on the Burlington market in the second half of 2015. That points to downward pressure on rents according to tenant representation brokerage Cresa’s 2016 Market Insight Report.
But ownership may be reluctant to make concessions on rents given that more than 90 percent of the class A product in Burlington has traded in the last three years, CBRE’s Hawkins said.
“They need to achieve higher rental rates for their investment formulas,” she said. “They’re all in it together, so I don’t see any signs of anyone blinking on the rents right now.”
