Athenahealth has proposed seven new buildings and a new parking garage at its Arsenal On The Charles office campus in Watertown. Photo courtesy Charles Rose Architects Inc.

Watertown has given the green light for residential and commercial buildings up to 11 stories, in a landmark policy change that could spur more development along the Arsenal Street corridor already swarming with new apartments, offices, hotels and buzzed-about restaurants.

The rezoning is a major milestone for Boston-based Boylston Properties, which hopes to redevelop the 33-year-old Arsenal Project mall property into an Assembly Row-like destination.

The plan, according to Founding Principal William McQuillan, includes up to four new buildings with apartments above retail shops and restaurants. The new structures would be built in front of the existing mall along with two parking garages, while the shopping center would undergo reconstructive surgery to add exterior-facing storefronts.

McQuillan also is weighing the idea of a residential tower up to 15 stories, which would require another round of local permitting.

“We’ve been very frank in saying that when we get to designing it, if the overall plan makes sense, we’re going to come back to them,” McQuillan said. “We see it as a tall, thin building.”

The new mixed-use district approved in early March by Watertown councilors straddles Arsenal Street near the Boston line. It raises maximum building heights from 55 to 135 feet, and encourages a mix of residential and commercial uses under the same roof.

Digital health records company Athenahealth wants to put its own modern spin on the 29-acre Arsenal on the Charles campus it acquired in 2013 from Harvard University. It’s proposing seven new office and mixed-use buildings totaling 250,000 square feet, including another parking garage with 1,209 spaces.

Athenahealth has already livened up the complex with Branch Line, a rotisserie-themed restaurant launched by Eastern Standard founder Garrett Harker, and there are plans for a brewpub with outdoor beer garden to replace a former bank branch.

The next phase would add new courtyards, plazas and pocket parks, shared streets designed to accommodate pedestrians as well as vehicles, and café-lined retail corridors open to the public. The new garage would be shrouded behind green walls, and an amphitheater would serve as an outdoor classroom while doubling as part of the stormwater management system.

As demand for creative office space and apartments rebounds in inner-ring suburbs,  development has gravitated to Watertown. Investors have seen opportunities to build loft-style offices, hotels and apartment complexes on parcels occupied for decades by the likes of car dealerships and building supply companies.

The new zoning district also encompasses the 18-acre Watertown Mall property at 550 Arsenal St., but an executive for the long-time property owner said there are no immediate redevelopment plans.

Anchor tenant Target has a lease that runs through 2033 and Best Buy also has a long-term lease, said David Rosen, executive vice president for mall owner Rosen Assoc. Management Corp. of Jericho, New York. The only short-term changes will be the search for a replacement for Friendly’s, which occupies a 4,600-square-foot outbuilding and has a lease expiration next year, and Old Country Buffet, which closed this month after its parent declared bankruptcy, Rosen said.

Steady Demand For Industrial Conversions

Boylston Properties acquired its first Watertown holding in 2000 and is betting on the town’s potential to reap spillover demand for commercial tenants priced out of nearby Cambridge. It’s converting and expanding a former Verizon building at 490 Arsenal Way into a 185,595-square-foot spec office building called Linx after obtaining a $61 million construction loan and has received three proposals from potential tenants, McQuillan said. It’s also developing a $40 million, 150-room Marriott Residence Inn at the former Charles River Saab property at 564 Arsenal St.

Boylston acquired the 225,000-square-foot Arsenal Mall, part of the former Watertown Arsenal munitions factory complex, in 2013 for $70 million. The 19-acre property includes the 35,000-square-foot Golfsmith retail building and 50,000 square feet of Harvard Pilgrim medical offices.

The two largest mall buildings will remain but will be renovated with outward-facing entrances for many retailers. An additional six full-service restaurants with liquor licenses are planned, along with a small grocery store, cinema and bowling-themed nightclub, McQuillan said.

“The east end of Watertown is just a very positive, happening place these days. Our mall is ripe for a major transportation and improvement,” he said.

Athenahealth has committed to Watertown as a base for expansion after acquiring its headquarters office space from Harvard in 2013. It received $9.5 million in state tax credits in exchange for a commitment to add 1,900 jobs over a decade.

The campus makeover would increase density while adding 2 acres of open space, through the removal of surface parking lots and construction of a 7-story garage, according to a site plan recently submitted to Watertown officials.

Filling The Transportation Gaps

The comparisons to Assembly Row, home of the first new MBTA subway stop built since 1987, stop  short when discussions turn to Arsenal Street’s transportation network. Traffic congestion will increase with new apartment complexes under construction on Arsenal Street, including The Hanover Co.’s 300-unit complex and Greystar’s 279-unit Elan complex.

East Watertown relies heavily on MBTA bus service for public transit, and state transportation officials are studying the drawbacks of the current service levels. In September, the Massachusetts Department of Transportation launched an Arsenal Street Corridor Study that will look at potential upgrades to the existing service.

In the meantime, local officials are looking to the private sector to fill in the gaps. The 128 Business Council is forming a transportation management association that has met with residential and commercial developers to coordinate a network of private shuttles that could begin by year’s end, said Patrick Sullivan, director of policy and outreach.