Boston’s Office Market Thrives, But Landlords Face Stiff Coworking Competition
Cranes in the sky and 200 active tenants in the market indicate Boston’s office environment is strong, but landlords can’t ignore coworking is becoming a bigger player, and competitor, in Beantown.
“I do believe coworking is here to stay and will play a bigger role in the Cambridge and Boston marketplace,” Intercontinental Real Estate Corp. CEO Peter Palandjian said. “However, it remains to be seen how it will fare through a full cycle and what its impact will be on traditional office in the next contraction.”
Coworking companies like WeWork and Workbar lease a combined 2.4M SF in the Boston market, and WeWork has the most available square footage, 786K SF, of any landlord in the city, according to Perry data.
While coworking companies tout their flexibility and have previously asserted they are ideally situated in the event of a market correction, others in local real estate circles think there could be weaknesses in the face of a downturn.
“I wonder if some of the office-based coworking spaces might disappear in a downturn,” said SMMA principal Marie Fitzgerald, who is speaking with Palandjian and others Feb. 7 at Bisnow’s Boston State of Office event. “You might already have access to these spaces in your rental or condo or somewhere nearby for free, and I suspect some coworking spaces must be paying top rents.”
WeWork may have the name recognition, but Boston’s coworking scene also includes companies like Regus, Servcorp, women’s only The Wing and the homegrown Workbar. WeWork, however, is the coworking brand notably moving into pricier real estate.
The company debuted in Boston at 745 Atlantic Ave., an 11-story office building across the street from the South Station bus terminal. WeWork has since expanded to a nearly 1M SF Boston footprint that now includes locations at trophy products like One Seaport Square, 33 Arch St. and One Beacon Street.
Boston developers at a Bisnow event last year were apprehensive about signing leases with coworking companies out of fear of how they would survive an economic downturn. Regus Northeast USA Vice President Maria Paitchel said coworking companies are best positioned to capture business from recent college graduates and startups that are prevalent in the local economy, and most developers recognize that.
“Coworking is also the best way to have high, dense usage of space when it’s tight,” she said. “While each has a difference in the culture they create, there is a demand for it, and this has become widely accepted as developers always need to conform to demand. With that said, not every developer wants coworking in all of their buildings, but that is OK too.”
Boston’s tech- and life science-heavy economy is creating an office market where tenants are growing rapidly and need space quicker than ever. With readily available large blocks of space hard to come by, some developers see coworking companies as a good partner to have when courting rapidly expanding firms.
“The coworking expansion in other cities is in large part being driven by younger companies and the technology sector,” Federal Realty Investment Trust Vice President of Development Patrick McMahon said to Bisnow in an email. “Our office market is bending toward technology and life sciences. Those companies move and grow quickly. Traditional office space with traditional lease terms (i.e. 10 years) are confining and don’t allow companies to grow easily or economically.”
As for the longevity of Boston’s economy and the impact it will have on the office market, to both traditional and coworking landlords, McMahon is bullish. Corrections are inevitable, but Boston’s medical and higher education institutes have made the regional economy less boom or bust than other markets.
McMahon also points to the number of well-capitalized, established companies, like Takeda, Genzyme and Reebok, that are either already in Boston or in the process of moving here as a sign of more runway in the local economy.
“I wish I had a crystal ball, but if and when an economic downturn occurs, because they always have and always will, I think Boston will feel a less severe impact than other metropolitan areas,” he said.
Hear Palandjian, Fitzgerald, Paitchel and McMahon at Bisnow’s Boston State of Office event Feb. 7 at the Westin Copley Place.