Bromfield Street in downtown Boston. Buildings in Downtown Crossing contain some of the highest concentrations of expiring state leases, potentially adding to the city’s office market woes. iStock photo

Pending lease expirations by state agencies in downtown Boston would add over 800,000 square feet of vacancies to the beleaguered office market, prompting business groups to urge Gov. Maura Healey to reverse her predecessor’s plan for a real estate diet.

More than 800,000 square feet of state office leases are due to expire in Boston during 2024 and 2025, research by brokerage Hunneman shows.

Buildings owned by BioMed Realty, The Druker Co. and Northland Investment Corp. are among those with the largest expiring state leases in 2024 and 2025, according to data provided by the state Division of Capital Asset Management and Maintenance.

Beyond the financial hits to individual landlords and neighborhood-wide economic effects of diminished office occupancy in urban centers, downtown business groups say the potential downsizing raises concerns about equity.

“It has an economic impact on our cities and citizens who expect to be able to meet the government in person,” Downtown Boston Business Improvement District President Michael Nichols said. “There’s also an equity issue where there are Black and Brown folks and people for whom English isn’t a first language, who really need for the Healey administration to maintain a physical presence.”

In 2023, the Boston BID and nine other Massachusetts downtown improvement districts urged Gov. Maura Healey to reverse former Gov. Charlie Baker’s “destabilizing” office downsizing plans. The groups argued that the effects of smaller state offices would cancel out the state’s post-pandemic small business assistance programs.

The agency that oversees state-owned real estate, the Division of Capital Asset Management and Maintenance, declined to discuss leasing at specific properties or goals for its total office footprint. But it hinted that it may follow the lead of many private office tenants in taking advantage of the office market decline to relocate to higher-tier properties as leases expire.

“In the current, tenant-friendly commercial real estate market, DCAMM has identified a unique opportunity to obtain higher quality space than is typically available to state agencies,” DCAMM Commissioner Adam Baacke said in a statement.

‘The Future of Work’ Is Remote?

In 2021, a McKinsey & Co. “Future of Work” study commissioned by the Baker administration laid out the rationale for downsizing state office space in the post-pandemic era, noting the prevalence of hybrid and remote workplaces and potential for cost savings.

But real estate organizations and downtown business groups across Massachusetts say the state government’s real estate footprint should play a role in post-pandemic economic development policy.

In the past, state agencies have leased space at new mixed-use projects in the state’s 26 economically disadvantaged Gateway Cities, such as Trinity Financial’s Enterprise Center in Brockton, generating foot traffic and helping developers complete financing packages. Former Gov. Deval Patrick sought to move Massachusetts Department of Transportation’s offices to the long-delayed parcel P-3 development site in Roxbury, but was overruled after Baker took office.

In a statement, DCAMM Commissioner Baacke said “the Healey-Driscoll administration’s post-pandemic office space strategy prioritizes high-quality government service delivery while taking into account our climate footprint, the costs to the Commonwealth as influenced by the real estate market, and the recent advances in hybrid work capabilities.”

The corner of Washington and School streets in downtown Boston. Buildings owned by BioMed Realty, The Druker Co. and Northland Investment Corp. are among those with the largest expiring state leases in 2024 and 2025. iStock photo

DTX Could Be Hit Hard

While government agencies don’t generate as much cachet to a property as well-known tech and consumer brands, office landlords even in Boston’s core submarkets are in no position to be selective.

“If you’re a tenant in the office market in downtown Boston, you’re going to be in demand no matter what, right now,” said Mark Fallon, Hunneman’s director of research and strategy. “The state generally locks in long-term leases, and every landlord is looking to lock in some long-term space. It’s tough to be picky in this market.”

Properties at Downtown Crossing have some of the largest concentrations of state offices. A dozen state agencies are tenants at Newton-based Northland Investment Corp.’s 600 Washington St. building, occupying approximately 230,000 square feet in leases that all expire Dec. 31. Social service agencies dominate the state tenants, with the largest leases occupied by the Department of Children & Families and the Executive Office of Health and Human Services.

Approximately 92,000 square feet of state office leases are expiring in spring 2025 at 1 Winter St., a Druker Co. property that also includes the Corner Mall retail complex. Druker Co. did not respond to a request for comment, but a source said the state has been in recent lease discussions at 1 Winter St. and at least one other Downtown Crossing building.

In South End, pending departure of a cluster of state agencies was the impetus for an office-to-lab conversion at 1000 Washington St. by BioMed Realty that received Boston Planning & Development Agency approval in September. Existing leases in the building will expire in spring 2025 and include the Division of Banks and Division of Insurance.

Steve Adams

Trade Group Calls for Renewals

Northland Investment Corp. and BioMed Realty declined to comment on future leasing and Druker Co. did not respond to a request for comment.

The state sends its largest rent payment in Boston to 100 Cambridge St., previously known as the Leverett Saltonstall Building, where it pays nearly $7.2 million a year. The 286,308-square-foot lease with owner Intercontinental Real Estate Corp. was recently renewed through 2052.

A diminished public sector presence in Boston would add stress to the 77 million-square-foot Boston office market, where vacancies recently topped 18 percent, according to a recent Hunneman report.

Commercial real estate developers group NAIOP Massachusetts reiterated its support for a substantial state employee presence in Boston.

“Looking to places like Washington, D.C., the impact of public sector employees on the vibrancy and health of cities cannot be ignored,” NAIOP Massachusetts CEO Tamara Small said in a statement. “Our downtown and commercial ecosystems depend on foot traffic – and NAIOP hopes that as state agencies consider renewing their leases, they recognize the valuable role they play in the community.”