Photo by Steve Adams | Banker & Tradesman Staff
PayPal’s move into office space at One International Place was considered a pioneering move in 2013, but the sight of tech startups in buttoned-down Financial District towers no longer raises eyebrows.
When PayPal put 30,000 square feet up for sublease last fall, four or five tech companies expressed serious interest within a week. DataRobot, a Boston-based software company that serves the data industry, emerged as PayPal’s replacement.
The transformation of downtown Boston’s office market continues with an influx of tech tenants scooping up space in towers to fill gaps left behind by the banking and financial service sectors. Unlike the law firms and investment managers who favor upper-floor space, however, tech companies have driven leasing activity primarily in low-rise and Class B space.
Nearly 18 percent of the office space on floors 16 and above in downtown towers is available, compared with less than 12 percent on the lower floors, according to JLL research.
The trend is reflected in a slight decline in rents for space on floors 31 and above during the second half of 2015, according to JLL data. Rents continued to rise in all other segments of the Class A market.
Competitive Alternative To Seaport
With the region’s financial services workforce yet to regain its pre-recession levels, tower landlords are relying on the tech sector for the next wave of leasing activity. They’re looking to attract companies outgrowing space in the Seaport and Cambridge or relocating from the suburbs or outside the region.
Costs are one obvious consideration: low-rise space comes with an average asking rent that’s nearly $12 lower per square foot. And tech companies generally don’t want to be cloistered on upper floors of towers, preferring access to the surrounding neighborhood.
“It’s that connection to the street that we keep hearing about,” said Lisa Strope, JLL’s New England research manager.
Competition between low-rise tower space and Class B properties in the Seaport is rampant, said Matt Twombly, a vice president at Avison Young.
“Some of these tenants, when they outgrow the brick-and-beam buildings, are forced to go to the low-rise towers, and the rents are pretty comparable,” Twombley said. “A lot of the low-rise space is in the high $40s, and in the Seaport the average ask is just under $50. But there’s not many big blocks available (in the Seaport).”
DataRobot, previously located above a nightclub near Faneuil Hall Marketplace, is in growth mode after raising $21 million in venture capital funding last year.
“Expanding our operations to include International Place represents our commitment to Boston and it will be the launch pad for building Boston’s next successful startup,” DataRobot CFO Matthew Cain said in a statement. DataRobot declined to discuss its current head count, citing competitive considerations.
Increasingly scarce space in Fort Point prompted Montreal-based LED lighting manufacturer Lumenpulse to lease 14,600 square feet at 10 Post Office Square after outgrowing 6,000 square feet at 268 Summer St.
“They were very much focused on the Seaport and the pricing down there just got to the point where they looked at some of the nontraditional tech buildings in the Financial District,” said Roger Breslin, a senior vice president at JLL. “They were able to get the space they needed, flexibility and a lower price point than the other things they were looking at.”
10 Post Office Square landlord Synergy Investments has been seeking tech companies to fill vacancies in the 445,000-square-foot bank building built in 1923.
Lumenpulse started out with three employees in Massachusetts in 2009 and picked Boston as the hub of its research and development division in 2011. It wanted to remain in Fort Point but couldn’t find contiguous spaces on a single floor with room for expansion, said Greg Campbell, Lumenpulse’s chief technology officer. The company has 30 employees, including its North American inside sales team, and plans to expand to 75 within five years.
It narrowed its search to 300 A St. in Fort Point and two properties in the Financial District, 10 Post Office Square and 230 Congress St., all of which had competitive rents, Campbell said.
“We were looking for a class B space and we didn’t want to be too stuffy,” he said. “And it’s not too far of a hike from North Station, so it opens up a little bit of a recruiting pool for us.”
Security software company EIQ leased 12,300 square feet at Oxford Properties’ 60 State St., less than a year after moving from Acton to 12 Post Office Square. In late January, EiQ raised $9.6 million in series C financing from Arrowroot Capital. An EiQ spokeswoman declined to comment on the company’s pending move.
Such incremental moves are typical of the tech industry’s growth patterns locally, but downtown landlords aren’t counting out the possibility of landing a big fish.
Cambridge-based Akamai has been exploring options in Boston and Cambridge, with its existing leases totaling 400,000 square feet set to expire in 2019. Akamai continues to include Boston in its space search for at least 600,000 square feet, according to brokers.
Financial Services Demand Tepid
Recent leases signed by Putnam Investments and BNY Mellon, two of downtown’s largest financial tenants, resolved some of the uncertainty hovering over the Financial District’s office market for the past two years. But neither move represents significant growth.
BNY Mellon renewed 250,000 square feet at the One Boston Place tower that it’s anchored since 1980, while Putnam leased 250,000 square feet at 100 Federal St. in a relocation from One Post Office Square.
“They’re both great for Boston in different ways,” said Andy Hoar, president and co-managing partner of CBRE/New England. “As it relates to the BNY Mellon deal, it’s clearly a vote of confidence in a revitalized Downtown Crossing.”
The BNY Mellon renewal includes plans to install a second-floor terrace and new conference and wellness space. BNY Mellon’s office space also will undergo a significant renovation. Landlords TIAA-CREF and Cambridge Ivanhoe and BNY Mellon will both contribute to the cost of the upgrades.
BNY Mellon previously occupied over 362,000 square feet at the 800,000 square-foot One Boston Place, while Putnam occupied 240,000 square feet at One Post Office Square.
And as Putnam moves into 100 Federal St., Bank of America will reduce its space in the tower by 137,000 square feet, Boston Properties executives announced last week in a conference call to discuss fourth-quarter financials.
Citizens’ Bank, which has anchored the 28 State St. tower for two decades, is looking at various options for its future real estate needs. The bank currently occupies 105,000 square feet at the tower owned by Rockefeller Group and Mitsubishi Real Estate.
And Santander Bank, which occupies nearly 623,000 square feet of space at 28 and 75 State St. and 2 Morrissey Boulevard in Dorchester, also has real estate decisions with leases coming up for renewal in the next two years.
