By all measures, 2014 was the strongest year in recent memory for the Boston office market. With an approximate 1.8 million square feet of positive net absorption, nearly 5 million square feet of tenant demand, and continued development around the city, Boston remained one the country’s strongest markets.
It’s not news that proximity to parking, public transportation, restaurants, bars and other amenities keeps employees happy. But Boston’s escalating prices mean cost-conscious companies must evaluate their downtown options — which means they have begun trading other items of importance, such as locational cachet, space configuration, look, feel and ultimately building type, for access to amenities.
As a result, if 2013 was the year of the Seaport, then 2014 was the year of Downtown Crossing (DTX). With the renovation of 10 Summer Street and Havas’ 120,000-square-foot move to the Millennium redevelopment complete, other companies have followed suit. The third and fourth quarters brought more than 250,000 square feet of deals to 500 Washington Street. Carbonite and Sonos took 52,000 square feet and 170,000 square feet, respectively, in the third quarter, while Safari Books Online took 30,000 square feet in the fourth.
Prominent national non-profit Year Up also consolidated its headquarters near DTX into 70,000 square feet at 45 Milk Street. Although asking rents have grown nearly 50 percent in the past 12 months, DTX and, really, Downtown in general are still less expensive than the Seaport, yet undeniably more robust in the factors of importance to groups looking to attract and retain valuable young talent.
Perhaps the most recent evidence of this exists in Acquia’s fourth quarter commitment to 76,000 square feet at 53 State Street. The company will double its footprint when it relocates from Burlington this summer and, in doing so, will join CDM Smith (122,000 square feet) and Hemenway & Barnes (44,000 square feet), which both elected to relocate to 75 State Street this year.
With a number of projects under construction or recently delivered, the Seaport has become more of a market for larger, established tenants rather than startups. Many of the smaller firms that drove the success of the Seaport five years ago are now discovering that renewing their leases will be cost prohibitive and are exploring other neighborhoods.
Some are even considering co-working space. Enter WeWork and Cambridge Innovation Center. WeWork leased nearly all of 745 Atlantic Avenue, a 170,000-square-foot building, and Cambridge Innovation Center took close to 80,000 square feet at 50 Milk Street over the course of 2014. By all accounts, both co-working space providers are thriving and continue to grow here in Boston, and throughout the country.
Rent growth is obviously implicit in any improving market. Boston overall is up 3.9 percent in the past 12 months, but Boston’s rate growth in 2014 was primarily, and perhaps ironically, due to this contingent of displaced companies looking for value alternatives.
This trend is most prominently conveyed by the emergence of Downtown Crossing (asking rates up 48 percent) and North Station (asking rates up 22.5 percent). Although DTX was undoubtedly Boston’s poster-child in 2014, North Station is right behind it.
Ride-sharing company Uber, announced it would be growing and relocating its Boston operation into 17,000 square feet at 239 Causeway Street. Uber is not a massive deal in the context of the broader market, but it augments a nascent tech community, along with the delivery of Converse’s HQ, the TD Banknorth Garden development project and numerous other residential developments currently in process in North Station.
Everyone knows that a real estate cycle is roughly 10 years, and 2014 was fundamentally the strongest in Boston out of the past nine. It may be hard to imagine 2015 being stronger, but with continued mixed-use development, the awakening of Boston’s sleepier submarkets, continued tenant demand coming from outside the market (Cambridge and the suburbs), and continued measured growth from the existing technology tenants, we think it will be.
— By Colin Greenhalgh, Associate Vice President, DTZ. This article originally appeared in the January/February 2015 issue of Northeast Real Estate Business magazine.