Boston’s office tower rents appear to be stealing a page from the city’s condominium market.
Some perches in Boston’s top high-rises are on track to fetch more than $90 a square foot as we move into 2016, with an outside chance that a lease or two could break into the triple digits.
What we are seeing is a classic example of what happens with a meager supply of a certain commodity – luxury condos, or in this case, shiny new office towers – meets a surge in demand.
Few new office projects are slated to come online over the next few years, even as the strong economy churns out jobs and spurs companies to expand and gobble up scarce corporate suites.
A crop of aggressive new owners, after shelling out big bucks to buy office addresses large and small, is also putting more upward pressure on rents.
“I think we will see some big jumps in premiere space pricing this year,” said Lisa Strope, New England research director for JLL.
The dearth of new office towers taking shape on the Hub’s skyline is shaping up to be the biggest factor pushing up rents.
That may seem like and odd criticism – after all, there are towers galore under construction right now across
Scott Van Voorhis
Boston. But most of these are luxury apartment or condo towers, albeit with a few larger mega developments – such as North Station and the
Government Center garage – that will include some office space as well.
The Boston Redevelopment Authority is also looking to pick a developer to build an office tower where the run-down Winthrop Square parking garage now stands. While that is most likely to be an office skyscraper, it could be years before it gets built and hits the market.
All this stands in contrast to past booms, especially the explosion of tower construction in the 1980s, which was dominated by new corporate high-rises.
The result has been a dwindling amount of available office space and soaring rents.
Rents in Class A downtown office towers jumped 7.4 percent in 2015, with a nearly 4 percent jump in the last three months of the year, according to JLL’s Strope.
Leasing activity downtown leaped 18 percent during the fourth quarter.
The average rent for top-shelf office space in Boston ended 2015 at just under $61 a square foot, up from $52 at the end of 2013.
“Suddenly downtown is looking good to a lot of people,” Strope said.
Signs Of The Times
Meanwhile, a sign of where the Boston office market may be headed in the years ahead may be found at 888 Boylston St., a posh new $275 million corporate address slated to open later this year.
The mid-sized office project that Boston Properties is finishing up at the Prudential Center is expected to see some rents reach into the $90 a square foot range. While the 17-story building can’t compete in height with the 60-story Hancock Tower, it is wooing potential tenants with the promise of the first truly modern office space to be built in Boston in decades.
The glass mid-rise takes a page from the city’s swanky new luxury condo towers, with floor-to-ceiling windows that you won’t find in Boston’s aging office district. There are also large floor plates and a high level of energy efficiency. The new 888 Boylston sports tens of thousands of retail and restaurant space while also having easy access to the Prudential Center and Copley Place malls.
Boston’s older office towers more often than not feature cavernous, lifeless lobbies, not restaurants and retail, with the Financial District still relatively starved for amenities compared to the Back Bay.
“888 Boylston will be the premiere of the premiere,” Strope said, referring to Class A office space in Boston.
I wouldn’t count out some of the oldie but goodies on the city’s skyline when it comes to commanding top rents, with the Hancock Tower (sorry, but no one calls it 200 Clarendon), at the top of that list.
It’s also possible that Cambridge, and in particular Kendall Square, could beat downtown Boston to the $100-per-square-foot amount.
Right now Class A office space in Cambridge is fetching an average of $70 a square foot – $10 higher than downtown Boston. And amazingly, Cambridge doesn’t even have any office towers – at best you are talking mid-rise space.
But the flood of high-tech and biotech giants into Kendall Square have put a premium on office space just as it has done with lab rents, which are through the roof.
Finally, along with an office market that is only getting tighter by the day, you have to factor in all those hungry Canadian, Japanese and Norwegian investors that have snapped up tower after tower over the past few years in downtown Boston.
Canadian-based Oxford Properties Group and JPMorgan Chase shattered records last year after buying 500 Boylston St. and 222 Berkeley St. for a staggering $1.3 billion. That’s about what the entire Hancock Tower sold for, with the deal topping an astronomical $1,000 a square foot.
After shelling out record prices, these newly minted Boston tower owners will be looking for a return on their investments. So are we going to be seeing a $100 a square foot on a select lease or two in the next few months?
You never know, but probably not. Still, barring a surprise recession, it may not seem all that improbable a year or two from now.
