Pearson Education reportedly plans to lease more than 100,000 square feet of office space at 501 Boylston St. in Boston’s Back Bay.
One step forward. Another back. And a third sideways.
Continuing its wayward path to recovery, Boston’s office market could be getting a boost from a suburban firm migrating in from Needham, with Pearson Education said to be close to leasing more than 100,000 square feet in the Back Bay. The signals are mixed elsewhere, however, as sources also claimed that Fidelity Investments is about to dump about 180,000 square feet of space at 100 Summer St. onto an already bloated sublease market.
“I know it’s true,” one industry source insisted last week of the Fidelity strategy, maintaining that the mutual fund giant will be relocating workers to the nearby 245 Summer St., which the company owns. If so, the move would temper rumors that Citizens Bank has taken a 115,000-square-foot sublease opportunity at the Financial District’s Exchange Place off the table, for reasons that remain unclear. Efforts to contact Citizens and Exchange Place were unsuccessful.
As for the Pearson deal, sources claimed that the firm is deep in negotiations with Beacon Capital Partners to lease space at 501 Boylston St., the Back Bay landmark property that Beacon purchased in 2002 from MetLife Inc. “I’m not sure if it’s done, but they are in very serious negotiations,” claimed one industry source, who requested anonymity. The source said the lease is most likely for two striking floors on the upper levels of the building that had been the domain of the insurer’s executives.
“It’s really great space,” said the source, citing indoor atriums and balconies as among the physical attributes. Beacon supposedly would want per-square-foot rents in the high-$30 to low-$40 range, although precise terms on rate and length of lease were not available.
Calls to the building’s broker, Steve Lynch of CB Richard Ellis, were not returned by press deadline, while Pearson’s agent, Philip Giunta, declined to discuss the matter. Nevertheless, sources insisted that the two sides are close to a deal, with one broker claiming that a tentative agreement already has been struck.
“The word is that it’s happening,” said the source, who also asked to not be identified. A division of London-based Pearson PLC, Pearson Education was formed in 1998 by the merger of Addison Wesley of Reading and a Simon & Schuster education division. Company officials reportedly hope to bring the group in from the suburbs to interact with another Pearson division that is leasing more than 150,000 square feet at 10 St. James Ave., located a few blocks from 501 Boylston St.
‘Slight Improvement’
On the Fidelity issue, sources said it appears the firm is continuing a path to move from leased space into properties the company owns, with Fidelity last year buying out of a major lease commitment at Boston’s 99 High St. A Fidelity spokeswoman said Friday that the firm would not be able to comment on the 100 Summer St. status, while officials at Equity Office Properties, the landlord, did not respond to an inquiry. The space is said to be on the lower floors, with one source listing them as floors two, seven, eight, nine, 10 and 22.
One question in the plan involves the amount of time left on the lease and just how Equity might respond. The landlord could accept a buyout, one source noted, or try to compete on the open market with what would probably be an aggressive sublease deal from Fidelity. In either case, the space will likely become fresh competition for nearby buildings such as 33 Arch St., 211 Congress St. or 100 Franklin St. that already have substantial vacancies.
“It’s that tale of two cities – the best of times and the worst of times,” one observer said of the Boston market. Along with at least 250,000 square feet said to be already on the market at 100 Federal St. as a result of the Fleet/Bank of America merger, the Fidelity offering could provide further problems for the Hub. “The pain hasn’t even started yet,” said Joseph Sciolla of tenant representation firm CRESA Partners, who warned that tepid job growth will continue to dog the region’s office market.
The latest events help characterize the region’s schizophrenic office sector thus far in 2004, with the first quarter yielding a range of results – and analysis – that cloud where the industry may be headed over the near term. An unexpectedly strong showing in suburban Boston was offset by lingering problems in downtown Boston and Cambridge to open the year, although just how deep the difficulties were depended upon whom one consulted.
“It’s a slight improvement,” NAI Hunneman Commercial Co. broker James Adams said in assessing the first quarter. Tracking 64 million square feet in downtown, the Back Bay, Seaport and North Station/Charlestown districts, NAI Hunneman calculated a dip in the vacancy rate from 13 percent to 12.6 percent in the first quarter. “It’s not all that dramatic, but we did see a slight uptick in activity from the beginning of the year,” Adams said.
Other estimates were more dour, including Spaulding & Slye Colliers posting negative absorption of 724,000 square feet for the quarter in Boston and minus 105,000 square feet in Cambridge. Overall, the 149 million-square-foot Greater Boston office market had positive absorption of 27,500 square feet, according to Spaulding & Slye, which credited the suburbs with positive absorption of 857,000 square feet in the first three months.
Owing partly to survey methods and when certain deals or space opportunities are posted, office market figures for Boston were all over the map in the first quarter, from NAI Hunneman’s positive outcome to Spaulding & Slye’s red-ink results. Cushman & Wakefield, for example, had negative absorption of 460,000 square feet in the Back Bay, whereas Spaulding & Slye credited that submarket with positive absorption of 25,000 square feet.
According to Spaulding & Slye, the Financial District was hit the hardest in the first quarter, with negative absorption of 765,000 square feet, vs. just 30,000 square feet of negative absorption in the Cushman & Wakefield compilation. Cushman & Wakefield reported positive absorption of 52,000 square feet in Cambridge, but said the vacancy rate actually increased, from 21.7 percent at year end 2003 to 23.4 percent three months later.
Even the bouncing numbers seemed to belie themselves, with Cushman & Wakefield Executive Director Mark Winters echoing sentiments of other brokers that tenant velocity was actually encouraging in Cambridge. “It surprised me that [the vacancy rate] went up,” he said. “Right now, there seems to be some good activity.” Although he questioned whether Kendall Square’s top properties will be able to continue demanding per-square-foot rents well into the $30s with other nearby product considerably below that level, Winters offered an upbeat prognosis for Cambridge overall, partly due to encouraging growth from small- to medium-sized tenants needing 25,000 square feet or less.
Even with rental rates still struggling, the suburban Boston office market had a solid first quarter, nearly all surveys suggested, although there were fluctuations in the amount of positive absorption there as well. Cushman & Wakefield registered positive suburban absorption of 279,000 square feet, while Richard Barry Joyce & Partners calculated nearly 1 million square feet of positive movement in the suburbs, with the strongest surge in the Route 495 West submarket following.
“I think we’re finally coming out of it,” said RBJ&P research director Brendan Carroll, citing solid showings in both Woburn and Waltham during the first quarter. In the outer fringes, Interstate 495 West had the best quarter, particularly in Marlborough. As for the downtown markets in which he specializes, Adams said he is not so focused on current numbers as he is future trends.
By NAI Hunneman’s projections, even with the FleetBoston/Bank of America reductions taken into consideration, Boston’s office market should see upward of 1.6 million square feet of net growth during the next 24 months. “There aren’t a lot of firms that are shrinking,” said Adams, who also said the Hub is most likely to see improvement via the small- to mid-sized tenant. Big players such as Fleet and John Hancock Financial Services “haven’t been our engines of growth for a long time,” Adams said.
“I’m not very concerned,” he said of market conditions. “I’m really very optimistic about Boston.”
