With the opening of Boston’s newest office tower next week at the World Trade Center, it might seem that tenants seeking badly needed space would finally enjoy a measure of relief, but in reality, such is not proving to be the case. As companies are discovering in the various buildings finally nearing completion throughout the city, an unusual level of pre-leasing is preventing such projects from making much of a dent in Boston’s record-low vacancy rates once they go on line.
“It’s extremely tight everywhere,” acknowledged Ted Wheatley, a principal with the Codman Co. In the case of the new East Office building at the World Trade Center, virtually all of the 475,000 square feet of space is already spoken for by such companies as AEW Capital Management and Cabot Corp. The same is true across town at both 10 St. James Ave. and 111 Huntington Ave., with solid pre-leasing leaving mere scraps for space-starved tenants to fight over.
Although third-quarter figures are not yet available, it appears that steady net absorption throughout the summer will only exacerbate the leasing situation. Most agree that the 1.5 percent vacancy rate posted at the mid-year mark will probably go down rather than up once results are in, especially given a series of large deals completed at major Financial District towers. Some 115,000 square feet at Exchange Place was scooped up by Citizens Bank, Fidelity Investments and a high-tech company took nearly all of the 400,000 square feet offered up at 100 Summer St. by the departing Blue Cross and Blue Shield, and State Street Bank committed to almost 200,000 square feet at One Federal St., space left over from the recent BankBoston/Fleet Bank merger.
Nothing Left
John Hennessey, a principal and downtown leasing broker with Thompson Doyle Hennessey & Everest, said he believes the accompanying rental increases have tenants exploring all potential options, both in fringe office markets and even potential alternatives outside the city. William W. Goade, chairman of Cresa Partners in Boston, concurs with that outlook, maintaining that skyrocketing rental rates could ultimately dampen the region’s lingering economic boom.
“It is recreating the issues of ‘Where do we do business,’ and for many people, it is not going just out to the suburbs, it may mean going to other parts of the country,” said Goade. The advent of e-mail and other new technologies makes being in the core downtown market less of a mandate, he added, while others are exploring such concepts as hoteling, where multiple employees alternate in sharing the same work space.
Although hoteling itself has received a tepid response from employees, the rising rents are expected to force tenants to consider new cost-cutting strategies, many observers agree. Rents in downtown Boston are now achieving $70 per square foot on a regular basis, and the news that Equity Office Properties is quoting $100 per square foot at One Federal St. has made the tenant community shudder, even if others believe a triple-figure rate is still well off into the future.
Interestingly, the situation is even more dire across the river in Cambridge, so much so that Wheatley reports companies there are crossing the river in search of the rare space opportunities in the Hub. “We see them all the time,” agreed Karyn McFarland of McFarland & Finch, a broker who concentrates on the North Station district. “But there’s nothing left for anyone.”
According to industry sources, Sapient Corp. is one of several Cambridge companies that have toured the Independence Wharf project at 470 Atlantic Ave. Modern Continental Enterprises is in the midst of a gut rehab of the 14-story property, one which will yield an estimated 335,000 square feet when completed next summer. Although company officials have kept mum about potential suitors, Sapient is said to have expressed strong interest in the building, and may be close to finalizing a lease. Wellington Management has also supposedly focused on Independence Wharf, and may be in late-stage negotiations to take at least two floors in the building.
Renovations of older properties have provided one of the few short-term options for companies as they wait for such projects at One Lincoln St. and 131 Dartmouth St. to move along. In addition, landlords are considering various approaches to respond to the demand. At 265 Franklin St., for example, Boston Properties and a joint venture partner are said to be reconfiguring the lobby area to ingest more usable office space. Purchased last month for $97 million, the tower is one of the few downtown with significant space available. Prior to selling the tower to Boston Properties, Westbrook Partners bought Fidelity Investments out of its lease in the property, freeing up an estimated 200,000 square feet.
Across town at the John Hancock Tower, meanwhile, the insurer is about to bring on more than 250,000 square feet into the Back Bay market. Largely as a result of the firm’s consolidation, the space will create one option for companies as they await 131 Dartmouth St.’s completion a few blocks away. Trammell Crow is leasing broker for the landmark tower.
