The Greater Boston area has entered one of the great building booms of the region’s modern history.
More than seven million square feet of commercial office space has opened during the past year, is currently under construction or will begin construction in the region this quarter, according to a local brokerage house.
This summer, nearly 1.1 million square feet of office space was delivered to just two tenants in Boston and Cambridge. Liberty Mutual has cut the ribbon on its new 22-story headquarters at 157 Berkeley St. at the border of Boston’s Back Bay and Bay Village neighborhoods.
But the lion’s share of the seven million square feet in the construction process is in Boston’s Seaport District, according to Brendan Carroll, senior vice president of research for Richards Barry Joyce & Partners (RBJ). In the first quarter of 2014, Vertex Pharmaceuticals will begin occupying its new 1.1-million-square-foot Fan Pier campus, moving from its current Cambridge home. Also on Joe Fallon’s Fan Pier, Goodwin Procter has leased space as the anchor tenant for a 500,000-square-foot office building that will stand near the Institute of Contemporary Art.
Traveling east on Seaport Boulevard, Skanska USA Commercial Development recently spent $126 million on a 17-story office tower that PricewaterhouseCoopers will move into in the fall of 2015. PwC will occupy 75 percent of the 450,000-square-foot building.
“There’s just no other area in the country that would be close [to Greater Boston]” in terms of private investment to build new office space, said RBJ’s Carroll.
Topping The Charts
The office space included in the 9.5-million-square-foot mixed-use redevelopment effort at the World Trade Center in Manhattan might eclipse the seven million square feet of office in process in Greater Boston. But so much public funding is being used for that project it really doesn’t belong in the same category, according to Carroll. Apartment buildings comprise much of the additional private commercial construction in New York right now, and while Greater Boston is building plenty of multifamily properties, the region still tops the charts in private office construction, Carroll offered.
It shows in terms of the number of hard hats active on job sites. In the last year, the cities of Boston, Cambridge and Quincy experienced the second largest increase of construction jobs in the country year-over-year. The three cities combined to add 8,700 construction jobs, up 16 percent in August from the same time in 2012, according to the Associated General Contractors of America, an Arlington, Va.-based industry lobbying group.
Construction is not the only category where Boston ranks high. It’s also topflight city among investors seeking new real estate opportunities. The city ranked seventh in the world in a recent capital markets study from global commercial real estate firm Cushman & Wakefield, coming in behind NYC, London, Tokyo and a few others.
Part of that interest is likely driven by the strengthening of market fundamentals that has occurred. In the Greater Boston area, the overall vacancy rate dropped to 13.8 percent after 1.4 million square feet of space was absorbed, the greatest quarterly absorption rate in six years, according to brokerage firm RBJ. And rental rates for office space in the region increased 3.9 percent in the third quarter of 2013, a new report from commercial real estate services provider Jones Lang LaSalle shows.
But new construction usually introduces some customary issues to a market. As buildings are introduced, it can be a challenge for the market to accept new inventory of office space without vacancies rising. But those are just “natural growing pains” of a market getting bigger, RBJ’s Carroll says. Those pains will certainly be neutralized somewhat since most of the new office construction that has occurred has gone forward with at least one tenant in-hand to occupy the new space. All told, the seven million square feet of new offices can accommodate some 32,000 new workers, Carroll estimates.
Email: jcronin@thewarrengroup.com
