Why Downtown Boston Landlords Are Not Spooked By A Seaport Exodus
When a large, longtime tenant says it is vacating for new digs, it normally causes a headache for the landlord. When downtown Boston law firm Nixon Peabody reportedly did just that, landlord Equity Office felt anything but.
“I’m not worried at all,” Equity Office Senior Vice President John Conley said. “There is an unprecedented amount of demand in the marketplace.”
While yet to officially be announced, the Boston Business Journal reported earlier in January Nixon Peabody had signed a letter of intent to lease up to 125K SF at 53 Summer St. when its lease at 100 Summer St. expires in 2019. While the law firm’s pending move would still be within downtown, it comes at a time when several of the neighborhood’s longtime financial services, consulting and legal tenants are packing up and heading to the Seaport.
“There’s a willingness to push the envelope on emerging neighborhoods,” Rubenstein Partners New England Director Deke Schultze said. “The boundaries of downtown are changing, and so is the acceptance of what is an acceptable area to work.”
The perimeter of where financial and law firms are setting up shop may shift, but the same is true of tech companies, which is why Conley is not losing any sleep over the Nixon Peabody news. Noting he never likes to lose a tenant, he said the move resulted largely from the rest of the building being 95% leased or committed. There was not enough swing space for the law firm if it had decided to stay and renovate its existing office.
Boston Consulting Group, Goodwin and PwC have all decamped or are in the process of moving from downtown to the Seaport. But their departure is creating opportunity for growing tech companies historically located in Fort Point and Kendall Square that are either priced out or at a loss for space.
Equity’s 32-story, 1M SF downtown skyscraper has emerged as the poster child for downtown’s new aesthetic. While it prepares to lose Nixon Peabody, 100 Summer St. has welcomed tech tenants like software startup Cloudhealth Technologies, which is leaving a 30K SF office in Fort Point for 80K SF in the tower, and Bullhorn.
The Abbey Group is underway with a tech transformation of its own at its nearby Lafayette City Center, home to Sonos, VMware and Carbonite. The neighborhood-wide tenant shift could not only save rents, it could also add an entirely new dynamic to a historically 9-to-5 neighborhood.
“Tech tenants backfilling office space in the Financial District or Downtown Crossing can help keep rents stable, if not grow,” MetLife Investment Management Director and head of Northeast Acquisitions Ashleigh Simpson said. “As financial firms move to the Seaport, the buildings they vacate have to be updated to attract tech tenants.”
MetLife’s One Beacon Street will undergo significant updates to attract tech tenants. WeWork announced last year it would open its sixth Greater Boston location at the building in 2018. It then announced earlier in January it would open its seventh nearby at 33 Arch St.
The new type of downtown employee, coupled with multifamily development, is changing the neighborhood’s operating hours. A variety of restaurants are popping up in Downtown Crossing, and companies like Gazit-Globe’s new U.S. subsidiary are optimistic about its retail future.
“It used to be that downtown was a ghost town by 6 p.m.,” Conley said. “They all came due to the demographic change of having more tech-based companies.”
One Greenway, The Kensington and Millennium Tower are three of the several high-rise developments leading the charge in downtown’s financial-to-residential transformation. Millennium Partners is moving ahead with a 691-foot mixed-use tower at 115 Winthrop Square, but some might argue it could be the neighborhood’s last megaproject before a downturn.
Not everyone views this as the twilight of the economic cycle. Simpson said the Land Down Under shows positive cycles can run for decades.
“Although recessions have generally occurred every five to 10 years in the U.S., countries like Australia have had much longer expansions. Australia’s current economic expansion started in 1991, or 27 years ago,” he said. “Maybe we will be as fortunate as Australia, thus supporting the next 115 Winthrop megadevelopment.”
Hear Conley, Schultze, Simpson and other panelists at Bisnow's Neighborhood Series: Downtown Boston event Feb. 22 at the Westin Copley Place.