The Chiofaro Cos.’ International Place office-condominium development opened in the teeth of one of the worst recessions in New England history, but that didn’t stop its later success. iStock photo
The future of Boston’s office and luxury residential markets can be seen in two new skyscrapers, one just complete, the other starting to rise into the city’s skyline above South Station.
A trickle of residents has started to move into the pricey condominiums at the 691-foot-tall Winthrop Center, fresh off the building blocks this summer, while the hunt is on to fill the tower’s hundreds of thousands of square feet of office space.
Meanwhile, a short walk away over at South Station, the steel frame of what will eventually be a 51-story office and luxury residential tower is steadily rising higher, with an expected late 2024 debut.
Both towers were conceived in the years before the pandemic, when the office market was thriving and luxury condos sold like hot cakes.
The question now is whether the future, as envisioned by developers and urban planners back in 2018 and 2019, will still work in the Boston of 2023 and 2024.
Quiet Start for Winthrop Square
With still roughly half of the city’s office space sitting empty, neither tower today would stand a snowball’s chance in you know what of landing the hundreds of millions of dollars needed to break ground.
And both towers and their respective developers, Hines at South Station and Millennium Partners at Winthrop Center, will face significant challenges in finding companies and other tenants to rent a combined total of more than 1 million square feet of office space.
While it is probably early for any announcements on leases at South Station, Winthrop Center has announced three blue chip tenants: McKinsey, Cambridge Assoc. and Income Research + Management.
So far, so good. But that accounts for just under 250,000 square feet, leaving another 462,000 square feet to fill.
Meanwhile, Winthrop Center’s condos are certainly selling, with deals having closed on 19 units as of May 25, per records at the Suffolk Registry of Deeds. Still, that leaves just 297 units to go – minus the 45 units said to be under contract, according to the Boston Globe.
Still, that’s a far cry from the deluxe, 61-story One Dalton condo tower, which had sold roughly a third of its 160 units by the time it opened in May 2019.
The latest sales figures also show a drop in sales of luxury condos worth more than $1 million by roughly a quarter during the first five months of 2023 compared to the same period the year before, according to the Boston office of Gibson Sotheby’s International Realty.
And the median price of these deluxe downtown condos also fell to $1.7 million, down from nearly $2 million a year ago, according to GSIR.
Scott Van Voorhis
No Need for Despair
But while the challenges are real, that hardly guarantees or even presages failure.
While the office market in Boston and across the country has taken some severe blows, the class A, top end of the sector – especially towers built in the last decade – are holding their own.
Vacancy rates for these newer, top-shelf towers are in the single digits, said Jeffrey Myers, research director at Colliers.
And that, of course, is good news for both the South Station and Winthrop Center towers, which will suddenly find themselves at the top of the heap when it comes to competing for tenants.
“Quality wins out and I do think that will be the case with this tower over time,” Myers said of Winthrop Center.
The challenges the two towers face are not unprecedented.
Just think back to Don Chiofaro, who began building his twin-tower International Place complex in the late 1980s. The second tower opened in the early 1990s amid the worst recession in New England in decades, complete with the failure of several long-time local and regional banks.
Chiofaro’s timing certainly raised eyebrows, with at least one big piece in the Globe raising questions along those lines.
Yet today the International Place towers are gems on the Boston skyline, with a long history of leading the city in office rents.
Given history like that, it’s easy to see why Winthrop Center’s developer is confident.
“We are nearing commitments for 25 percent of the condos, and since the recent opening, the response to The Millennium Residences at Winthrop Center has been tremendous,” MP Boston principal Richard Baumert said in a statement. “There is strong interest for office leases as well and we look forward to sharing exciting updates in the very near future. We are confident in both residential and office components of this building; there is no luxury residential experience like this elsewhere and the workplace environment is unparalleled.”
Timing, while pretty darn important in development, isn’t everything. And until someone invents a way to reliability predict the future, developers and projects will continue to get stuck on the wrong side of the real estate cycle.
Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
