More Than Cheap Rent: Boston Developers Invest Millions To Add Downtown Flavor To Suburban Projects
Despite a string of tenants packing up and moving downtown, developers are still getting companies to commit to suburban Boston. It just takes money and a commitment to build an urban lifestyle to sell tenants on the burbs.
Cambridge and downtown Boston’s building boom often feels like it is coming at the expense of suburban office parks. Reebok left Canton for the Innovation and Design Building, PTC ditched Needham for 121 Seaport, and Philips plans to move its North American headquarters from Andover to Cambridge Crossing next year.
But suburban developers aren’t letting companies head downtown without a fight, armed with costly renovations and a focus on amenities a younger workforce craves.
“The headlines are Gen Z wants to be in the city, but I don’t happen to believe that. It’s just an easy headline to digest,” Rubenstein Partners Senior Vice President Peter Gottlieb said Wednesday at Bisnow’s Boston Burbs Bonanza event. “We know what we need to do to position assets to capture all major food groups that happen to be in the suburbs.”
Rubenstein invested $33M in upgrading the Center at Innovation Drive in Tewksbury to include meeting areas, a café, a fitness center and an amphitheater. Waltham-based Raytheon signed a seven-year, 134K SF lease at the development in May.
National Development bought the New England Executive Park in Burlington in 2013 and repurposed it as the District, which has shuttle service to the Alewife Red Line station, restaurants like Island Creek Oyster Bar and a hotel.
Hobbs Brook Management plans to replace its Waltham headquarters with 500K SF of office and labs.
The string of repositioning and redevelopment projects also helps with financing a project.
“The calculus is different,” The Davis Cos. Managing Director Cappy Daume said. “You have to go big to land a credit and longer-term tenant, because the cash flow component of those investments is way more important than in the urban core where you have rent growth to depend on.”
Attractive suburban tenants today tend to be a mix of life science, technology, light manufacturing and defense companies looking for more space than what is available closer to the urban core, panelists said Wednesday.
Most local real estate experts say a proposed merger between Raytheon and Connecticut-based United Technologies, if approved, would result in a suburban Boston headquarters.
Moderna Therapeutics’ $110M, 200K SF Norwood complex gives the Cambridge-based company the clear heights and water access necessary to manufacture and conduct clinical work.
Microsoft splits its local employee headcount between Kendall Square and Burlington, a result of East Cambridge’s tight, competitive office market.
“The suburbs certainly aren’t dead,” Newmark Knight Frank Executive Managing Director Torin Taylor said. “Not everyone can or wants to go in Cambridge or the Seaport.”
The suburbs' main appeal is often their value. Class-A office rent in Kendall Square is just shy of $100/SF, and it is a little more than $71/SF in the Seaport, according to Perry data. Along the Route 128 and 495 beltways, Class-A offices rent for an average of $35/SF and $24/SF, respectively.
Nevertheless, most tenants still want the level of amenities found in Cambridge and the Seaport.
Panelists on Wednesday and in previous interviews with Bisnow indicated suburban developers have to modernize obsolete product to have a chance of securing tenants. Millennials who have had amenities like open kitchens and kegerators at Fort Point offices still want them if they move north of Boston and work somewhere along Route 128 or Interstate 495.
WS Development Chief Financial Officer Eric Smookler stressed the importance of offering South End-style restaurants in suburban locations to foster a better tenant experience.
Even industrial and light manufacturing users need a little bit of glitz.
“They don’t want just a 30-foot building,” Taylor said. “They want a building to have some pizzazz to attract a high-end worker suited up doing manufacturing. They want it to look sleeker than a normal industrial park.”
Amenities may help woo a tenant to the suburbs, but mobility is needed to keep them happy when they get there.
The MBTA is making headlines more for derailments than reliability this summer, and riders shifting away from trains to Uber and Lyft are causing more congestion on roads. Suburban developers will typically say an advantage their projects have is being close to where employees — usually drivers not dependent on the subway — live.
But there are plenty of projects along Route 128 North and from Quincy to the south relying on Red Line access as a marketing tool. Bozzuto Development Co. has redevelopments underway near the North Quincy and Quincy Center stations, but Bozzuto Senior Vice President Lauren Jezienicki thinks the current transit issues are short-term problems with an end in sight.
With the MBTA’s $8B capital improvement plan, nearly $2B is being invested in overhauling the entire Orange and Red subway lines over the next few years.
“Long-term, we’re not that concerned,” Jezienicki said. “We’re confident the system will work well.”