Toronto-based ManuLife Financial Corp. has unveiled plans to sublease 450,000 square feet in Boston’s Back Bay area in the John Hancock Tower and other properties.
When it comes to office space, Boston’s Back Bay is moving a bit backward these days.
Despite some leasing successes in 2004, including the arrival of Pearson Publishing from Needham, the city’s second-largest office submarket has seen its share of difficulties as well, with Spaulding & Slye Colliers reporting negative absorption of 331,000 square feet during the third quarter alone. That brings negative absorption for the year in the Back Bay to 680,000 square feet, while the availability rate for office space there has risen from 16.1 percent at year-end 2004 to a current mark of 18.2 percent.
The latest difficulties are largely due to companies either defecting for other areas or by firms downsizing their occupancy levels, as in the case of ManuLife Financial Corp. following its merger with John Hancock Financial Services. Toronto-based ManuLife, which has a new building in Boston’s Seaport District, has unveiled plans to sublease some 450,000 square feet in the Back Bay in such properties as 200 Clarendon St. (aka the John Hancock Tower) and 101 Huntington Ave.
In another instance, American Student Assistance has left 330 Stuart St. to a new home at Boston’s Government Center, while Digitas Inc. is leaving space behind at Copley Place and the Prudential Center as it moves to 33 Arch St. in the Hub’s Financial District. Massachusetts Financial Services has also offered space for sublease at 500 Boylston St., and Copley Place has several sizeable holes to plug, including space left behind by the departure of Bain & Co. to 131 Dartmouth St.
‘Generally Good’
Veteran Back Bay brokers such as James Adams of NAI Hunneman Commercial Co. concur that the Back Bay has been impacted by the subleasing trend, but many also insist that conditions are not as dour as the numbers might make them appear. “The undercurrent of activity has been generally good,” Adams maintained, a notion seconded by Codman Co. principal Robert B. Cleary Jr.
“If it wasn’t for all the [subleasing], I think you would see positive numbers in the Back Bay,” said Cleary, who has watched the area mature from one dominated by retail and residential uses in the 1980s into a major destination for office users. Although there has been a dearth of large tenants seeking space, Cleary said there are plenty of firms vying for space between 3,000 and 15,000 square feet, so much so that landlords in smaller properties are beginning to hold the line on rental rates.
“I do see some evidence of rents beginning to firm up a little bit in the Back Bay,” said Cleary, although he stressed that larger tenants would likely win substantial discounts if they were willing to pursue the bigger spaces being put up for grabs.
Meanwhile, Adams expressed hope that some of the top subleasing opportunities may never come to fruition. Bank of America, he noted, has lowered its estimate of space being put out for lease in Boston to about 270,000 square feet, nearly 200,000 square feet less than what it had announced in the summer. “Things are never as bad as they seem,” Adams said, citing other cases where tenants who had planned to cut space later reduced those figures by a substantial amount.
Adams said he is also encouraged by the number of tenants out seeking space. By NAI Hunneman’s estimates, there are active tenant requirements of nearly 900,000 square feet in Boston at present, users who would be landing somewhere during the next 18 to 24 months. Investors Bank & Trust, for example, is rumored to be needing another 100,000 square feet above the 350,000 square feet it currently occupies in the city, including its major presence at the John Hancock Tower. Student loan servicer First Marblehead Corp. has also been growing in the Back Bay, occupying an additional 25,000 square feet there in recent months after having virtually no presence a few years ago, while several law firms are also in an expansion mode throughout the submarket.
Although he agreed the recent absorption figures have been disturbing, Adams said he believes the Back Bay is poised to rebound along with the improving economy. Amenities such as hotels, restaurants and retail have helped bolster the area as an office submarket, as has a solid location from the west of Boston via the Massachusetts Turnpike. That foundation has led to a sharp increase in available space, with Spaulding & Slye estimating that the Back Bay’s office market has expanded from 9.6 million square feet in 1999 to the current level of just under 13 million square feet.
Not surprisingly, the added supply has not helped on office rental rates, particularly in recent months. Pegged at $40.15 per square foot five years ago, Spaulding & Slye places the current Back Bay asking rent at $34.67 per square foot. That compares to an overall city average of $34.61 per square foot and the Financial District’s average of $36.52 per square foot.
Even with the slippage of rental rates, the Back Bay continues to attract investors, as witnessed by the pending sale of 116 Huntington Ave. to Beacon Capital Partners. As Banker & Tradesman has reported previously, Beacon has the 14-story office building under agreement, with the sales price pegged at between $75 million and $78 million. The building features 265,000 square feet of space. Several other Back Bay assets are also changing hands, including 330 Stuart St., said to be under agreement to Liberty Mutual Insurance Co., a longtime staple of that submarket.
