The Boston office market had nearly 440,000 square feet of positive absorption in the fourth quarter, as the Seaport District continued to attract corporate headquarters relocations.
After a blistering fourth quarter of office leasing activity in Boston, tech and e-commerce companies including Amazon, Wayfair, Spotify and DraftKings are positioned to gobble up even larger blocks of space in 2018.
Major office tenants’ preference for new construction could be a catalyst for development of millions of square feet of build-to-suit or speculative office towers in the Seaport District and beyond. Front and center is Amazon’s requirement for 500,000 to 1 million square feet of space, on top of its recent expansions at 253 Summer St. and 31 St. James Ave.
“It’s clear that Amazon wants to make a big investment in the Boston area, even if it doesn’t become the next Seattle (headquarters),” said Will Foley, an executive director at Cushman & Wakefield. “The Seaport can support that size range, but it’ll take some patience until those shovels are in the ground.”
Amazon is exploring expansion in the Seaport even as it reviews Boston and Revere’s proposal to host its 8-million-square-foot HQ2 complex, which spotlighted the 161-acre Suffolk Downs property as the marquee local site.
Steve Adams
The e-commerce leader is focusing on Newton-based WS Development’s 12.5-acre Seaport District parcels, according to real estate industry sources. The property, primarily surface parking lots off Congress Street and Seaport Boulevard, was described in a Boston Planning and Development Agency memo as “some of the last remaining opportunities to attract major innovation economy employers to the Seaport.” Close to 2 million square feet of office space could be built following the BPDA’s recent rezoning of the property. WS was not available for comment.
Amazon’s big Boston requirement invites speculation about whether that makes the region more or less likely to land HQ2.
“The fact that they already have a footprint here means they like it here,” said Ron Perry, a principal with Avison Young in Boston. “Tech companies are always talking about the underlying strength here being the talent pool. They established that base and then they look to do something on a bigger scale.”
Amazon might use its initial Boston expansion as a trial run for the second headquarters, said Brendan Carroll, director of intelligence for Perry Brokerage Assoc.
“It just seems to be the geography they like in this market, so it makes a lot of sense they would choose (the Seaport),” Carroll said, noting that Amazon’s initial HQ2 requirement calls for a 500,000-square-foot office building delivered in 2019. “There’s no guarantee this requirement isn’t (part of) HQ2. Amazon is under no obligation to follow any sort of process.”
Proven Appeal for HQ Relocations
After landing corporate headquarters relocations from General Electric and Reebok in 2016, the Seaport maintained its momentum in 2017 as Skanska and Tishman Speyer leased up two speculative office buildings, including headquarters for Alexion Pharmaceuticals of New Haven, Connecticut and Needham-based PTC.
Recent leases by educational publisher Cengage at Pier 4 and Alexion at 121 Seaport snapped up the two largest near-term availabilities in the heart of the Seaport, although Cengage will leave behind 120,000 square feet at 20 Center Channel St. when it moves to Pier 4 this fall.
The Seaport’s demonstrated appeal may prompt other developers to go spec on future projects, with several industry sources saying Skanska plans to break ground on a 13-story building at 2 Drydock Ave. containing 211,700 square feet of office space. Skanska declined to comment.
But companies looking for sizeable blocks of space in the shorter term will have to broaden their horizons.
“If you want to be in the Seaport, you’ve got to build it or you choose a different submarket,” said Aaron Jodka, director of research for Colliers International Boston. “That could be a really good driver, particularly for North Station, Back Bay and the Financial District.”
Another high-profile option is Government Center and the 717,128-square-foot Center Plaza overlooking City Hall Plaza, acquired by Boston-based Synergy Investments in April for $365 million.
Online music streaming service Spotify is nearing a commitment for 75,000 square feet at Center Plaza, according to industry sources. Spotify acquired Somerville-based music researchers Echo Nest in 2014 and has been looking for up to 100,000 square feet in Boston for over a year. Synergy and Spotify did not respond to requests for comment.
And in the transforming South End, Nordblom Co. has kicked off a speculative 230,000-square-foot office building atop a three-story parking garage at 321 Harrison Ave.
“Obviously these cycles can’t go on forever and this has been a lengthy one,” Cushman & Wakefield’s Foley said. “But the usual telltale signs of a slowdown haven’t showed up, specifically very large pockets of sublease space.”
Office absorption in Boston totaled nearly 440,000 square feet in the fourth quarter, according to research by Newmark Knight Frank. That was the highest in the highest in six quarters, even as many employers seek to use space more efficiently by eliminating private offices.
Wayfair and DraftKings Eye Back Bay Expansion
Back Bay briefly had the highest vacancy rate among Boston submarkets following the relocation of large tenants including Wells Fargo, Houghton Mifflin Harcourt and Partners Healthcare, but has rapidly recovered with substantial leasing at Boston Properties’ 200 Clarendon, the former Hancock Tower.
“Back Bay has been a general laggard in this cycle, but 2017 was a turning point, with 250,000 square feet of positive absorption in the market,” Jodka said.
Now, potential expansion by online home furnishings retailer Wayfair and fantasy sports site DraftKings could fill a large block of space at Oxford Property Group’s 760,000-square-foot office tower at 500 Boylston/222 Berkeley St.
Wayfair has been focused on Back Bay for expansion near its existing 600,000-square-foot offices at Copley Place. The search appears to have concluded with a pending lease for at least 200,000 square feet with potential expansion to 400,000, according to office brokers, while DraftKings is nearing a commitment for another 100,000 square feet in the buildings.
Another emerging hotspot is Boston Properties’ Hub on Causeway at North Station, considered a likely candidate to break ground on a 21-story, 525,000-square-foot office tower if a sizeable lease is signed. Online security firm Rapid7 leased 157,061 square feet in the office podium building now under construction, with a right of first offer for two floors in the future tower.
