Ten Post Office Square
Ad agencies, architects and tech companies are generating the next wave of tenant demand in downtown Boston, an office market long dominated by the financial and legal industries.
The vacancy rate for class A space in the Financial District declined to 10.2 percent in the first quarter with 171,000 square feet of positive absorption, according to research by brokerage DTZ.
Transit-friendly commutes, a variety of modernized buildings to choose from and less pricey rents than the Seaport and East Cambridge are contributing to the in-migration.
“A lot of the companies that before their search began would have told you they only wanted to be in the Seaport, are looking at buildings they would not normally look at,” said Roger Breslin, senior vice president at JLL.
Ad agency Arnold Worldwide’s move from Back Bay to 125,000 square feet in the former Filene’s building last summer was a milestone for the Downtown Crossing office market, where the 60-story Millennium Tower Boston condos are the most potent symbol of the city’s development boom.
But the Financial District, which contains more than half of Boston’s 63 million square feet of office space, is undergoing its own post-recession transformation. Architects, digital media shops and tech companies are responsible for some of the biggest lease deals of the year.
Digital agency Criteo is expanding from 12,000 to 60,000 square feet at 60 State St., while Burlington-based cloud computing company Acquia will relocate this spring to 73,000 square feet at 53 State St.
The growing downtown ad industry cluster factored into Digilant Boston’s upcoming May relocation from the North End to 2 Oliver St., a Synergy Investments property in the Financial District. The 8,500-square-foot location puts it closer to clients such as Havas and DigitasLBi, said Sanjay Pothen, Digilant’s U.S. managing director.
“Our clients are agencies and there’s an agency critical mass down there,” he said.
New Twist On Old Buildings
But central locations only go so far. The need to update traditional office buildings for new economy tenants has not been lost on landlords, many of which are investing in repositioning projects focused on ground-floor and common-area spaces.
After spending $143 million to acquire Ten Post Office Square last fall, Synergy Investments and GreenOak Partners are preparing a renovation program for the 445,000-square-foot bank building completed in 1923.
Preliminary plans call for collaborative workspaces, new food vendors and conversion of lower-level spaces into a fitness center, locker room and bicycle storage space, said JLL’s Breslin. With 18 percent of the building available, the owners are sending out lease proposals starting at $45 per square foot, compared with rents in the mid-$30s one year ago.
Arrowstreet office space
Boston Private Bank & Trust is the largest tenant, but new arrivals such as Arrowstreet architects could offer a guide for the future. Arrowstreet knocked down all interior walls and cubicles to create a collaborative office space, now a staple of tenant tours.
The relocation from Somerville’s Davis Square in February 2014 reflected Arrowsmith’s desire to connect with Boston’s professional organizations and its downtown clients, Partner Amy Korte said.
“We discussed what it means to be a firm that is downtown and how that supports our engagement with the city,” Korte said. “It felt right to be in the center of things, and between North and South stations.”
While it doesn’t have harbor views or brick-and-beam architecture, 101 Tremont St. is another example of the current options for office tenants looking for affordable downtown rent.
Boston-based Paradigm Properties acquired the rundown 10-story structure, perhaps best known for its ground-floor tenant Beantown Pub, in late 2013 for $9.7 million. The strategy was to appeal to tech companies with its location a block from the MBTA’s Park Street station, Paradigm CEO Kevin McCall said.
Since then Paradigm has replaced utilities and demolished the interior spaces to create open-plan offices with 6,700-square-foot floor plates, including its own headquarters and that of real estate industry nonprofit Building Impact.
Eight of 10 floors are now committed, including a venture capital-backed local health care technology company that recently leased 20,000 square feet for expansion, McCall said. Rents for new tenants average in the low $40s, he said.
“You see what’s happening in East Cambridge,” he said, referring to near-zero vacancies in the biotech hub. “Whether that’s pushing some of these users out to new markets or whether they like the idea of being downtown anyway, it makes a lot of sense for local growing companies.”
Affordable Space Redefined
Like house-hunters who settle for a longer commute or less prestigious school system after experiencing sticker shock, many companies have broadened their horizons because of rent increases in hot neighborhoods. Average class A rents on the waterfront are $55.92, according to DTZ, compared with $49.24 in the Financial District.
Redefining the standard for affordable office space downtown, average rents for 5.3 million square feet of Financial District class B space rose 10 percent during the quarter to $38.06 per square foot.
“As class A rents move, the class B will follow and the value space is becoming less and less available,” said Joseph Sciolla, managing principal for Boston-based Cresa Partners, a tenant brokerage. “The class B market is very, very strong and will continue to be strong for another year at least.”
