Boston's New Skyscrapers Are Mostly Available. Office Experts Say That's A Good Thing
Four skyscraper projects taller than 500 feet are underway in downtown Boston, which stands out in a city where critics almost always chide towers for casting new shadows and go to great lengths to stall their approval.
Work is expected to begin this week on a 1.1M SF, 678-foot tower over South Station. Around the corner, MP Boston is under construction on the 691-foot Winthrop Center. Blocks away in Post Office Square, JLL and Anchor Line Partners are redeveloping the 42-story One Post Office Square in a $250M renovation that will increase the building’s footprint from 853K SF to 1.1M SF.
In Government Center, the development partnership of Carr Properties, National Real Estate Advisors and HYM Investment Group are building the 600-foot One Congress, which is already 50% leased to State Street.
The towers will add needed supply to Boston’s Central Business District, which was at its tightest vacancy rate this cycle at the end of 2019 at 7.1%. Of the new construction, only One Congress has a committed tenant.
The wave of skyscraper supply may stand out in a place with a tough-to-build reputation like Boston. But the region’s real estate community says the new product is making up for years of underbuilding.
“We feel the market can handle new product, and it’s really going to allow some of the larger tenants to have more options in Boston,” said JLL Executive Managing Director Benjamin Heller, who is on the brokerage team for One Post Office Square. “These buildings are coming at a time where there’s a lot of demand still pent up."
It is unlikely the skyscrapers' owners will find one tenant to fill any of their buildings. There are no active tenants in the Greater Boston office market with the 500K SF needed to fill the other half of One Congress or take up a significant portion of the other projects, according to brokerage documents obtained by Bisnow.
The largest active space requirements are financial firms Loomis Sayles and Eaton Vance, which both need 350K SF. The remainder of the 20 largest active requirements range between 80K SF and 275K SF.
“You’ll likely get something like a State Street lease where it takes 50% at One Congress and gets it going, but it’s not enough to call it the State Street Tower,” Avison Young Senior Research Analyst Tucker White said. “If anyone is going to take the whole chunk, it’d likely come from out of market.”
“We’d welcome another 500K SF lease, but we feel pretty good that we already leased up half the building,” HYM Investment Group founding partner Thomas O’Brien said. “The city still has a lot of good, solid tenants.”
Larger-than-expected tenants do still appear in the market. Foundation Medicine’s 580K SF lease at 400 Summer St. turned out to be significantly larger than the 300K SF to 400K SF the genomic testing company told local brokerages it was seeking before its Seaport deal announcement last year.
“Boston and Cambridge will continue to churn out several Foundation Medicines over the next few years,” Colliers International Managing Director Aaron Jodka said. “Who they are, I don’t know. But they’re going to continue to pop up and need space.”
Technology companies and life science firms have charged Boston’s current development surge, but limited expansion opportunities may be giving developers motive to move ahead with towering projects. When Amazon bypassed Boston for Washington, D.C., and New York City for HQ2, many local real estate players felt the snub was due to the company having limited space to quickly scale up its planned second headquarters.
There are only three direct existing office availabilities with more than 200K SF in Boston, according to Avison Young, including 601 Congress in the Seaport, 100 Summer St. and One Post Office Square.
“Boston is growing as an international city, so there is plenty of unexpected demand coming from out in left field,” Avison Young's White said. “If you want Boston to continue to grow on all cylinders, you should welcome this supply hit."
Several existing tenants, like JLL at One Post Office Square, are moving down to the building’s low-rise section while the mid- and high-rise component are redeveloped. Financial services, law, tech and life science companies are all showing interest in the project, JLL's Heller said. He isn’t concerned by any threat of oversupply.
Boston’s current building boom is significant, but it still comes short of the 1970s and 1980s. A little more than 26M SF of office was built in Boston’s urban core between 1970 and 1989 compared to slightly less than 10M SF between 1990 and 2009, according to Colliers. Nearly 8M SF was built in the last decade, and 7.8M SF is currently underway.
Of the office projects in development through 2023, 66% of the space is already pre-leased, according to Colliers.
“We’re certainly seeing more product underway than we did in the 1990s and early 2000s,” Newmark Knight Frank Research Director Elizabeth Berthelette said. “Is it more supply than we’ve seen so far this cycle? Yes. Am I overly concerned? No. Demand has been adequately strong to meet supply to-date.”