Boston’s Seaport district – a neighborhood that has long been hailed as key to the city’s development future, and one that suffered heavily during the commercial downturn – is showing signs of life again. Leasing activity is up, and chunks of vacant space are being filled.

But there’s a divide emerging in the neighborhood. Owners of second-generation space are reaping the rewards of increased activity, but investors who drew up plans to convert the neighborhood’s vacant warehouses into new brick-and-beam office space are still facing a steep uphill climb.

“There is a bifurcation there,” said Michael Joyce, co-founder of Richards Barry Joyce & Partners. “Second-generation space in the Seaport is leasing. But if you bought a building to rehabilitate it, if you have to gut the buildings and put in new systems and new lobbies, you’re going to be pressed. I just don’t see the economics working out.”

Joyce attributed the divide to stiff competition from the Financial District. Big blocks of vacant space are limited in Boston’s trophy towers, he said, but they’re plentiful in the low-rise sections of Class A towers, and in the city’s older Class B buildings. A tenant in the market for 25,000 square feet of space currently has 21 Class A options in the Financial District alone, Joyce said. And the average Boston tenant is smaller than 25,000 square feet.

“Landlords are contending with price points in the lower towers,” said Jeffrey Becker, a senior vice president at NAI Hunneman. “Just because there’s velocity at the second-generation space, you can’t just approach Berkeley Investments and say, ‘Why don’t you do 368 Congress?’”

Low Rents, Few Prospects

Buildings across Boston have been battered by the commercial real estate downturn, with tenants shedding more than 2 million square feet of occupied space since the beginning of 2009, according to data from Jones Lang LaSalle. More than 320,000 square feet of those losses occurred in the Seaport’s Class B and C office space – space that had been a value play when rents were exploding downtown, but became less attractive as vacant space in the Financial District became cheap and plentiful.

In the Seaport, Class B rents have fallen 20 percent from their 2008 highs, to under $28 per-square-foot, according to data from FHO Partners. Year-to-date, the submarket has booked roughly 21,000 square feet in positive absorption.

Brokers expect rents to stay depressed for an extended period of time because of the sheer volume of available space across the city. It’s creating competition among landlords, and keeping rents down. And until rents grow, developers can’t afford to build new space.

That’s bad news for Lincoln Property Co., which bought the vacant warehouse at 320 Summer St. with plans to renovate 140,000 square feet of office space. Lincoln paid $17.8 million for its building, and planned $32 million in construction work. At those prices, Lincoln would need to charge rents in the high $30’s or low $40’s to recoup its investment.

Berkeley Investments also has permits to renovate 100,000 square feet of office and retail space at 368 Congress St.

Depressed rents are also bad news for the Archon Group, the real estate arm of Goldman Sachs. Archon bought much of Summer St., A St. and Melcher St. in July 2005, for $92 million. The company successfully flipped eight properties in 2006 and 2007, netting $132 million, or a $40 million profit over their entire initial investment.

But Archon still holds five properties in the neighborhood, and four are redevelopment projects. It recently tried peddling 49-63 Melcher St., where it holds permits to construct 220,000 square feet of office space, but found no takers.

‘A Destination’

At the same time, with rents low and tenants feeling increasingly confident in their own futures, firms are becoming more willing to commit to long-term leases. They’re also pouncing on rock-bottom rents that are opening up the neighborhood to tenants from outside Boston. That’s good news for firms like Berkeley Investments, National Development, Normandy Real Estate Partners, Brickman, the Beal Cos. and Crosspoint Assoc., all of which have significant holdings in second-generation office space in the Seaport.

“In the Seaport, tenants still have a lot of options, and they’re getting strong economic deals,” said Ben Heller, a senior vice president at Jones Lang LaSalle. “It’s certainly a lot more active, and we’re seeing an influx of tenants from other markets. But landlords still have to compete hard.”

“It isn’t just a captive audience from downtown anymore,” NAI Hunneman’s Becker added. “Tenants are coming from Cambridge and Waltham. There’s a better chance of getting buildings leased up, just based on a new, broader audience.”

Becker is currently shopping for space in the neighborhood with a Cambridge tenant looking for 25,000 square feet.

“We’ve always said, ‘Let’s keen an eye on Fort Point,’” Becker said. “It’s an option you couldn’t consider during the last leasing cycle, but now it’s really become a destination.”