Spec Office on the Way?
Next week, Commonwealth Ventures prez Dick Galvin expects digging to start for the $155M hotel project he’s developing at the Seaport in a JV with Ares Management. It’s part of the wave of construction, leasing, and sales that could ignite spec development. Join Dick and other industry leaders to hear more at Bisnow’s 2014 Boston State of Office, May 29.
In the past few years, Dick and CV have invested about $850M in offices in the Seaport and the Financial District, solid markets being moved by new drivers. No longer are companies leasing for convenience of the CEO (who’s likely to be in Hong Kong or New York anyway). Tenants want to be where they can attract and retain skilled workers, which means a downtown address with good transportation access. (Also easy access to artisan coffee.) Thanks to the mostly federally funded $16B Big Dig, Boston is one of few US CBDs with a new highway, he says.
Could all of this mean spec office development is on the way? “There’s a good chance we’ll see something get out of the ground this year,” says HFF executive managing director John Fowler. Perhaps in the Seaport, maybe Cambridge. John says that HFF has been talking to several capital sources looking for additional yield. They've had their fill of multifamily and now are considering spec offices. (Don't tell multifamily that, it has a fragile ego.)
With tenants like State Street, why not? The financial services giant is leaving space in the Financial District for a 500k SF build-to-suit at CV’s Channel Center (above). State Street and others doing the same are willing to pay higher rent for new, more efficient, sustainable space in emerging locations, Dick says. Some are doing relos from elsewhere downtown; others are migrating from the ‘burbs.
Creating the activity is a new mix of businesses—especially tech companies— eager for space downtown, says Cushman & Wakefield New England research director Sharon Joyce. In Q4 ’03, techies were 6.3% of tenants seeking to lease offices, now they’re 18%. With rising demand, average downtown asking rents are edging up—from $44.53 at the end of ’13 to $45.77 in Q1.