How Landlords Are Trying To Meet Tech Tenants' Hyperspeed Office Needs
The technology industry has drastically altered how landlords woo office tenants in Boston.
“We see large tenants who need the space right away,” Equity Office Senior Vice President John Conley said. “Tenants who wanted 50K SF used to look around 18 months to two years in advance. Now it’s closer to three months.”
Tech has dominated the ongoing positive cycle in Boston’s office market, and the industry’s reputation as a disruptor has extended into how landlords appeal to potential tenants. While law firms and financial firms are known for making space decisions far in advance, the tech community has compressed the time from site tour to move-in.
“It’s unclear if it’s driven by publicly traded companies wanting to manage their operating expense or others who are focused on their bottom line,” Rubenstein Partners New England Director Deke Schultze said.
The lingering hangover from the dot-com bust, when tech tenants had planned far ahead with space needs could be a factor. While they expected to grow into larger offices, companies got burnt out going into a downturn with too much space.
“The tech community today is more focused on their business than their space needs,” Conley said. “Hence, they grow faster and are not as prone to getting out there two years in advance.”
Their growth is more explosive than a bank or insurance company; thus, they wait until the last minute. This need for more space has sparked another shift in what companies consider is Greater Boston’s tech hub.
As life science firms turned Cambridge into a lab-dominant market, the historically tech-heavy Kendall Square passed its tech reputation across the river into areas like Boston’s Fort Point and Seaport neighborhoods.
But as bigger companies like Amazon, Red Hat and General Electric have elbowed into the neighborhood with sizable space needs, tech startups have looked across Fort Point Channel into downtown when it comes time for more room at the office.
“The Financial District got rebranded as downtown, which makes sense because financial companies don’t dominate it anymore,” Conley said.
Law firms like Goodwin as well as financial and consulting firms like PricewaterhouseCoopers and Boston Consulting Group have either moved or plan to move to new buildings in the Seaport. This frees up space in downtown office towers for tech companies to consider. CloudHealth Technologies, Rapid7 and Bullhorn have all moved into the 450-foot 100 Summer St.
Bullhorn carefully considered its options when wagering whether to leave its Fort Point offices for downtown, company spokesman Steve Vittorioso said. It spent six months deciding on its move, not quite three months, but drastically shorter than the time landlords saw from the financial industry.
Tech has even changed the way landlords present spaces.
“In the urban core, there’s been an increase in speculative suites where landlords will furnish a suite and tenants will pay a premium if it's plug-and-play,” Schultze said.
Banks and law firms are often beholden to strict corporate standards regarding office layouts, which require a longer stretch of time to build out. Landlords have noticed younger tech tenants are more flexible and usually do not want to spend the capital that goes into custom design. Instead, they are open to more generic spaces with reusable kitchens, offices and conference rooms that can be freshened up between tenants.
“It’s like renting an apartment,” Conley said. “You’re not going to go and ask your landlord to move a wall.”
Equity is in the middle of repositioning its 13-story office building at 399 Boylston in Back Bay, and Conley said it presents an opportunity to appeal to these new types of tenants. The lobby has been renovated and new ground-level retail tenants like Tatte Bakery are part of a campaign to give the building more of a community feel than that of an office.
Landlords recognize aesthetic shifts like this are key to satisfying new tenant demands.
“More than ever, tenants are looking at their real estate less as a cost and more as an opportunity,” Schultze said. “They want that space where they can leverage their business and recruit and retain talent.”
Conley, Schultze and other panelists will discuss their market outlook at Bisnow's Boston State of Office event on Sept. 19.