PricewaterhouseCoopers is reportedly seeking only 280,000 square feet of office space in Boston, down from the 400,000 square feet the accounting giant currently occupies in such properties as International Place (pictured above), One Post Office Square and 160 Federal St. Those existing leases begin expiring next year.
When it comes to Boston’s slumping office market, even the good news often has a down side.
According to industry sources, John Hancock Advisors has agreed to stay put at 101 Huntington Ave., ending months of negotiations with Boston Properties. But while the estimated 120,000-square-foot deal was certainly welcomed by the landlord in a torpid 2002 leasing cycle, John Hancock will also be giving back at least three floors it had occupied in the 25-story tower, which is part of the Prudential Center mixed-use complex.
The corporate shrinkage by Hancock is just the latest challenge facing the local office sector. Already reeling from a flood of sublease space and the arrival of new developments such as 131 Dartmouth St. in the Back Bay, landlords are seeing an austerity movement among companies, with officials adjusting their occupancy projections increasingly lower to overcome reduced revenues and demands for greater fiscal responsibility.
“Whether it’s a renewal or a relocation, the [space needs] seem to be less,” Meredith & Grew Oncor Vice President Robert B. Cleary Jr. concurred last week. “It’s a quiet way of having this particular market continue to hurt us.”
Indeed, sources last week said PricewaterhouseCoopers is now only seeking about 280,000 square feet of office space in Boston, down from the 400,000 square feet it currently occupies and substantially lower than the 350,000-square-foot requirement that has been circulating the market over the past year. With its operations currently scattered in such properties as International Place, One Post Office Square and 160 Federal St., the accounting giant has lease expirations beginning next year, sources said, making it a candidate for a number of opportunities coming available over the near term.
PricewaterhouseCoopers is being represented by McCall & Almy of Boston and Jones Lang LaSalle. Requests for information were referred to JLL official Philip Liebow, who did not return phone calls by Banker & Tradesman’s press deadline.
According to sources, PricewaterhouseCoopers has looked at a range of choices in its space search, including excess capacity at One Lincoln St., the 36-story office tower currently under construction across from South Station. Although anchor tenant State Street Corp. is openly peddling only 250,000 square feet for sublease, indications are that the firm would likely entertain larger users should they appear. Others said PricewaterhouseCoopers could be a contender for nearly 110,000 square feet of prime space coming on line at 225 Franklin St.
In that instance, Equity Office Properties reportedly is about to put mid-level floors currently occupied by Arthur Andersen up for grabs. That Chicago-based accounting concern is preparing to surrender the Boston headquarters as it disappears into the bottomless abyss created by its massive auditing scandal.
“My understanding is that that opportunity is becoming available,” one Hub broker said last week. Equity is “getting ready to show it” to prospective tenants. Arthur Andersen had been in the Financial District tower since 1997, when it relocated amid much fanfare from International Place. Arthur Andersen’s troubles have already hit Boston Properties, as the firm recently terminated a lease to occupy most of a 47-story office building in New York City being developed by the Boston-based real estate investment trust.
Equity officials declined to address the 225 Franklin St. situation directly, saying only in a prepared statement that “Arthur Andersen had leased approximately 425,000 square feet within our portfolio. As a company, we’ve been proactive over the last six to eight weeks in meeting with Arthur Andersen … to discuss Andersen’s space throughout the portfolio. As of right now, Andersen is still paying rent.”
Negative Results
In any event, the corporate consolidations – and evaporations – do appear to be hurting Boston’s office fundamentals, although industry observers insist there are signs that a recovery is beginning to take hold. Even with such optimism, however, mid-year numbers released last week by Meredith & Grew indicate it has been a difficult six months for the industry.
“We are looking at continued negative net absorption,” said Cleary, with the Back Bay in the red by 273,267 square feet and the Financial District down an alarming 554,262 square feet. For the city, the vacancy rate has now climbed to 8.4 percent. The availability rate, which reflects both empty and sublease space, has increased to 13.4 percent.
The Financial District currently sports an 8.2 percent vacancy rate and an availability rate of 13.2 percent, while the Back Bay has a vacancy of 5.9 percent and an availability of 12.2 percent. Greater Boston, which covers the city as well as Cambridge and the suburbs, has a vacancy rate of 11.6 percent and a 19.2 percent availability rate, according to Meredith & Grew.
As for the Hancock pact, Boston Properties principal Claude Hoopes declined comment at the client’s behest, as did Trammell Crow principal Charles O’Connor, whose firm brokered the six-figure renewal. Efforts to contact Hancock officials were unsuccessful by press deadline. While substantially less than what the company has occupied at the tower in the past, observers noted it was a better outcome for Boston Properties than had John Hancock moved elsewhere.
While remaining among the Hub’s premier office destinations, with the new 111 Huntington Ave. 98 percent leased, the Prudential Center has seen a number of floors come on line in recent months, either directly or as sublease opportunities. That reportedly led to an all-out effort to retain long-time tenant Hancock, sources said.
“My understanding is that it was a pretty aggressive [rent],” said one source, opining “it was a good deal for both sides.”
Boston Properties must now deal with the wandering eyes of another 101 Huntington Ave. tenant in Arnold Worldwide. The communications company has also been pursuing other options in the market as its lease expiration nears, reportedly taking a close look at the 353,000-square-foot 131 Dartmouth St., as well as other alternatives. The company is being represented by Thompson Doyle Hennessey GVA. Officials at the real estate services company would not discuss the status of negotiations with potential landlords when contacted last week, but sources predicted a deal could be hammered out over the next few months.
