The disruptive effects of technology are forcing real estate companies to adopt more flexible business models to attract the next generation of office users, retail tenants and apartment dwellers, industry insiders said Wednesday at a forum put on by NAIOP Boston. Banker & Tradesman was one of the co-sponsors of the event.
As tech companies drive office demand in Boston and other coastal markets, landlords have little choice but to offer more collaborative office space and shorter leases to attract growing companies.
"Tech tenants and other creative industries are absorbing a tremendous amount of space and traditional tenants such as law firms are not," said Owen Thomas, CEO of Boston Properties. "Cities that are positioned to meet that demand are doing very well."
Boston Properties broke ground Wednesday on 888 Boylston St., a new office tower and the last development within the Prudential Center complex. The 425,000-square-foot property will be anchored by Natixis Global Asset Management, which has leased 128,000 square feet.
There are still growth opportunities for real estate investors catering to tech start-up space, said Katie Rae, managing director of the five-year-old TechStars business incubator. Landlords have been increasingly flexible about offering short-term leases for tech incubators such as WeWork, reflecting the uncertain business models of start-ups.
"We can’t take on long-term leases. Many of these companies can and should die, so we need real estate that allows us to grow rapidly and shrink without causing a lot of harm," Rae said.
Thomas said San Francisco and Boston are the strongest U.S. tech markets, but Washington, D.C. has more growth potential at this stage in the real estate cycle.
"Washington is not late in the cycle, primarily because it doesn’t have this creative tech class that is so important to a lot of the other cities," he said.
Multifamily fundamentals remain strong nationwide with rising rents and occupancy levels. Berkshire Group CEO Chuck Leitner III said the industry has benefited from the resurgence of urban living in many metros and potential long-term declines in home ownership.
Boston-based Berkshire is planning to build 832 apartments in two towers above retail shops as part of the 6.3 million-square-foot Seaport Square complex in South Boston.
"We are seeing the need to be more mobile, more flexible, and fear of incurring debt and owning homes," Leitner said.
In addition to Banker & Tradesman, the NAIOP forum at the Westin Copley Place Boston Hotel was sponsored by AEW Capital Management, Haley & Aldrich, MassDevelopment, Robinson & Cole and Solomon McCown.
