What's a Tenant to Do?
A vacancy rate taken by itself can be misleading (like the unemployment rate), says Matt Harvey, principal at Cresa Boston, which recently released its 2013 tenant market report. With 6.1M SF of new offices in Boston’s development pipeline, the market is growing. But the tenant base isn’t expanding as fast. While there’s been substantial leasing, it looks like “musical chairs to us,” he says. (And if you remember that game at all from childhood, you'll remember it wasn't very fun.) Companies are moving but not taking more space. A bonus: landlords still offer free rent and generous TI allowances.
Tenants face a dynamic Seaport market with less space available than 18 months ago. That's led lots of small companies to the Financial District and North Station; i.e. AKF left the Seaport for 99 Bedford St (above), Matt tells us. Also, tenants may face challenges as a result of the “robust” investment sales market. When properties like Center Plaza and One Post Office Square are sold, it’s possible that the new owner—with a new property manager—may run the building differently or charge tenants for operating expenses differently.
In Cambridge, where the much sought after Kendall Square submarket has a 1.2% vacancy (overall for the city it’s 5%), tenants must be willing to pay top rents for a 100% location, says VP John Coakley. Methodically analyzing all options inside and outside of Cambridge may help them gain leverage, John says. If an owner is preparing to sell and wants to maintain face rents, they may be willing to provide a tenant with other concessions such as increased TI and/or free rent. (Still no free lunches though.)
Rents have eclipsed $70/SF in prime properties like Cambridge Center (above) in part driven by big dogs like Google and Microsoft, which occupy more than 300k SF each. Options are limited, but as tech giants acquire smaller, younger companies, space becomes available. When Twitter purchased BlueFin Labs and Crashlytics last year, they consolidated into offices at 141 Portland St which came on the market after Google scooped up the prior occupant, ITA Software. (We're part of a tech land war here.) Another ray of hope—500k SF of new space will boost the inventory next year when the Cambridge Courthouse redevelopment finishes. Also, as rents catapult over the $70 threshold, developers will consider spec.
