Several major corporate tenants are leaving or reducing their office presence in Boston’s Back Bay, including Houghton Mifflin Harcourt which is moving its corporate headquarters to the Financial District.

Lots of activity in the Boston office market this year involves the same set of companies, but new addresses.

With landlords competing largely for the same set of tenants, that sets up a game of musical chairs among submarkets and property types: Financial District versus Back Bay, low-rise versus high-rise, class A versus class B space.

In the short run, the biggest loser appears to be Back Bay, where publisher Houghton Mifflin Harcourt will leave its longtime headquarters in 2017 and relocate to 125 High St. in the Financial District. Sources say another major corporate tenant, Wells Fargo, is in serious discussions to move to 125 High St. from 200 Berkeley St. in Back Bay.

125 High St., a 1.8-million-square-foot tower owned by New York developer Tishman Speyer, will have 376,000 square feet available late this year after PwC moves to 101 Seaport, an office tower under construction on the South Boston waterfront. The high level of interest among large replacement tenants is a testament to the continuing popularity of the downtown market, which has a growing reputation for strong public transit connections and an increasingly lively after-work scene.

“A year ago, a real soft spot was the low-rise space in the Financial District,” said Matt Harvey, a principal with Boston-based brokerage Cresa. “Now there’s been a ton of leases, so that has largely gone away and we’ve seen an increase in rents. Most of the positive absorption continues to be with tech and consumer goods companies as opposed to banking, legal and finance.”

At the same time, recent activity points to a softening in the 12.3-million-square-foot Back Bay submarket. Back Bay has over 337,000 square feet of negative absorption in 2015, with leases expiring on 350,000 square feet in the John Hancock Tower that were formerly occupied by State Street Corp. and Manulife’s John Hancock Insurance division. Landlord Boston Properties is repositioning four lower floors in the Hancock as tech space.

In the absence of new transplants and major expansion by the current crop of companies, Boston citywide had a modest 144,731 square feet of net absorption in the first half of 2015, according to brokerage DTZ’s second-quarter office report. Overall availabilities were unchanged compared with the previous quarter at 14.7 percent.

Leasing activity picked up late in the quarter among class B properties downtown, said Roger Breslin, a senior vice president for JLL. Providence-based accounting firm KLR took 12,000 square feet on the fifth floor of 225 Franklin St., while hospitality industry researchers PKF Consulting leased 4,500 square feet at 99 Summer St.

While class B availabilities in the Financial District were virtually unchanged at 13.3 percent, rents rose nearly $3 per square foot to $41.05, according to the DTZ report. Class A rents were virtually unchanged at $49.41.

Even with the rise in rents, class B properties remain one of the few values in the central business district, Breslin said.

“It’s just a simple factor of the Seaport rents having gone up so dramatically. Companies are looking for value, and the value still exists in the B market in the Financial District,” Breslin said.

Premium space in downtown high-rises has shown big recent gains, averaging $63.77 per square foot according to JLL’s 2015 Digital Skyline report. That’s nearly 25 percent higher than low-rise rents, and the widest spread between the two segments since the market collapsed in fall 2008.

A New Low For East Cambridge
Cambridge continues to show off the strongest office in New England with over 500,000 square feet of absorption since January. Average rents in East Cambridge rose over $2 to $65.36, while vacancies dropped from 6.5 to 4.4 percent in the quarter.

As in Boston, tenants are lining up to lease space years before it becomes ready for occupancy. Alnylam Pharmaceuticals’ leased 295,000 square feet of former Vertex space at 675 West Kendall St. that will become available in 2018. And Biogen leased 80,000 square feet at BioMed Realty Trust’s 301 Binney St., bringing that 417,000-square-foot complex to full occupancy.

Given the miniscule vacancies, other life science companies that are determined to have a major Kendall Square presence are opting for build-to-suit projects. In late June, Bristol-Myers Squibb Co. leased 208,000 square feet at 100 Binney St., Alexandria Real Estate Equities’ 431,000-square-foot office and lab building that is scheduled for delivery in late 2017.

Lab tenants priced out of East Cambridge are most likely to look at Alewife and Route 128 as the next option, said John Coakley, a Cresa vice president.

“As most tenants commence a search both on the office and lab side, it’s pretty consistently looking outside of Cambridge,” Coakley said. “We can look at Cambridge as well, but a lot of times it’s a short exercise. There’s a short number of options that make sense.”

Suburbs Count On Organic Growth
Landlords in Metrowest have been counting on growth from existing users, said Connor Barnes, a vice president at DTZ. There’s little migration from the city or Route 128 to the outer suburbs, although at least one company is looking for up to 100,000 square feet in the Natick-Framingham market to consolidate several sites in Greater Boston.

“In the past, we’ve seen groups from 128 coming out to exit 13 (in Framingham) for rent relief, and that hasn’t happened yet,” Barnes said. “One of the things you hear is it’s difficult to recruit young talent (in the suburbs). We haven’t seen many companies go the other way to save a few bucks a foot.”

Although the current vacancy rate is 12 percent in Metrowest, the market remains tight for tenants with large space requirements. There are just two buildings in the 5.6-million-square-foot Framingham and Natick market with availabilities for tenants looking for more than 25,000 square feet of contiguous space.

One stabilizing sign is the removal of several big blocks of sublease space from the market.
TJX Cos. had put 100,000 square feet at 500 Old Connecticut Path in Framingham up for sublease last year, but later removed it. Likewise, Natick-based software developer Mathworks removed a large block of office space it had put on the sublease market last year.

Although rents have been steady in the mid-$20s range, some investors have found opportunities to generate quick turnaround profits in Metrowest. Boston-based Marcus Partners sold 111 Speen St. in Framingham for $22.7 million in April, just two years after acquiring it for $14.5 million from RREEF. The purchase price works out to $195 per square foot.

“That is a very solid number, which we have not seen an investor pay in a while,” Barnes said.