‘One Man’s Trash’: More Companies Taking Space In Boston’s Older Offices

The flight to high-quality office space has been well-documented in recent years, but a series of deals in Boston point to an emerging trend of tenants instead looking for more affordable rents in older buildings. 

Several of the biggest office leases signed in the city last quarter were manufacturing or pharmaceutical tenants relocating to Class-B space, according to Savills' second-quarter market report. 

Boston office market experts tell Bisnow that tenants are seeking out these buildings to get the best bang for their buck. At the same time, a string of older buildings have sold at dramatic discounts, allowing new owners to offer attractive deals to tenants.

"Those are the more price-sensitive tenants who need to either relocate or scope out new products," said Marisha Clinton, vice president of research at Savills. "I always say one man's trash is another person's treasure."

Boston's overall office leasing activity was slightly down in the second quarter at 3.3M SF, compared to 3.7M SF in the same quarter last year, according to Savills' report. Class-A offices saw the largest rent growth, with a 5.3% increase from the same quarter last year. 

The rent growth was accelerated by the entrance of new high-end buildings to the market, including 544K SF 10 World Trade and 51-story South Station Tower. Those buildings also added to the city's availability rate, which Savills pegged at 20.2% last quarter. 

While new buildings delivered with space available, a series of older buildings in the market attracted large lease deals last quarter.

In January, Arnold Worldwide and Havas Media — owned by the same French company — announced their relocation from 125K SF at 10 Summer St. to 70K SF at 5 Necco St., the former General Electric headquarters that LoopNet classifies as a Class-C building. 

"While there's a flight to quality from some tenants, you can expect more price-conscious tenants from industries more tied to the economy, they continue to gravitate to more Class-B and C," Clinton said. 

The suburbs are seeing similar activity.

Dicerna Pharmaceuticals expanded to 26K SF at 50 Sylvan Road in Waltham, a Class-B property owned by Alexandria Real Estate Equities.

Bose Professionals signed a 56K SF lease at Rhino Capital Advisors' 117 South St. in Hopkinton. Rhino bought the office building from Dell EMC in April for $4.2M, the Boston Business Journal reported.

Matt Daniels, the New England brokerage lead for JLL, pointed to another deal that illustrates this trend: Boston Dynamics, a robotics company based in Waltham, signed a 33K SF lease at 44 Dunham Road in Billerica.

"If you're talking about commodity, straight office, it's certainly a little bit more challenging, but if the building has some additional clear heights, loading and power, what has been traditionally Class-B or C product is getting some activity," Daniels said.

Daniels also said he is seeing higher rates of renewals "across the board" for Class-B and C offices. 

There have been several high-profile sales of older office buildings this year. 

Boston-based Synergy has been the city's most active buyer, including the acquisition of the largest office building since 2019 — the 21-story 101 Arch St. The firm bought the property in March for $78M, a drop from $121.7M Clarion Partners bought it for in 2005. That same month, Synergy acquired the 179 Lincoln St. office building by assuming the property's $76.5M in debt. 

Local firm City Realty has also acquired multiple downtown office buildings at discounts, including last month's $13M deal for 201-207 South St., and it paid $41M in May for a Chestnut Hill office park. 

With investor interest rising for Class-B office buildings, Colliers Research Director Jeff Myers said it wouldn't be surprising if older office stock becomes more competitive.

Myers said owners that have bought Class-B office buildings for discounted prices can keep their rents at a bargain compared to Class-A buildings and other Class-B buildings that are struggling to break even.

"Class-B is going to be a different ballgame than Class-A because of a couple of things here," Myers said. "For those owners that aren't talking about conversion, they're coming in at a lower basis, they're going to be able to compete on price."

Myers said that Class-B rents have already come down 15% in the second quarter and are expected to drop more as time goes on.

"As rents fall for those properties, you're going to have more opportunities for tenants who want more affordable leasing opportunities in Boston to take advantage of that," Myers said.