It’s a Game of Musical Chairs for Boston’s Corporate TenantsThe last five years have seen a lot of shuffling around for Boston’s mainstay industries, with professional service firms moving to the Seaport and tech companies moving to Kendall Square. Although we’ve seen more new residential and commercial development than ever, there will always be space limitations in Boston, which means there will always be more user demand than there is space on the market. The space left behind from tenants on the move will be easily filled by the next wave of tenants — and the cycle continues.
Oxford Properties’ latest announcement of its acquisition of 222 Berkeley St. and 500 Boylston St. in the Back Bay is perhaps the best example of the trajectory model in Boston. And similar to the media and finance switcheroo that Manhattan is experiencing (the media mecca is now downtown and FiDi is now midtown), media companies in Boston are now moving into the financial district and finance firms are moving to the Seaport. Boston Globe Media Partners is close to leasing 75,000 square feet of space at 53 State Street. The publishing company will take some of Goodwin Procter’s block that will be vacated once the company relocates to the Seaport District. The newspaper is once again marketing its 670,000-square-foot headquarters in Dorchester.
Another inevitable cycle repeating itself is a shift back to traditional office environments, even for progressive companies in modern spaces. As employees start working in some of the latest and greatest workplace strategy designs like benching, hoteling and total open floor plates, it turns out that these models are not being received as positively as expected. The necessity for at least 80/20 percent of private space for confidentiality purposes is becoming apparent and several companies are going back to the drawing board to reconfigure a more manageable and functional ratio of open versus closed spaces.
One fundamental aspect of our business will most likely remain a constant: the core high-tech, healthcare and education industries will continue drive the commercial real estate sector in Boston. Most of the press buzz for the city can be attributed to biopharma due to its unique and intriguing developments — and the industry has seen 38 percent employment growth rate since 2005. However, it is the high-tech sector that has paid nearly 20 percent of all wages in Massachusetts in the last decade, according to the Bureau of Labor Statistics. Finance and legal, once critical industries to Boston’s vitality, have lessened in impact year over year.
And it is because of the strength in healthcare, education and high tech, that Boston will not experience any sort of drastic crash, but more of a leveling off. At most, we will see availability rates move from super tight to slightly less tight, perhaps to 10 percent from 4 percent availability. The truth is we’ve had a frothy market for the past three years, hitting double digit rent growth year over year, particularly in core markets like the Seaport and Kendall Square. 2015 was a record-setting year for building trades and deal volume — with $5 billion trading hands. Of course, we will continue to feel some pain in the north and south suburban markets, but as the cycle continues, even those markets might see some more activity as the hot markets become fully saturated and cost savings become more appealing.
— By Steve Woodworth, Senior Managing Director, Savills Studley, Boston. This article originally appeared in the January/February 2016 issue of Northeast Real Estate Business magazine.