Boston Office Market

Developers in Boston are racing to snatch up the limited land available in Massachusetts’ capital city with the majority of new development taking place in the South Boston Waterfront area, as most of the available land is located there. For the most part, these developers, such as The Gale Company, Boston Properties, Joe Fallon and Hines, are constructing projects that feature a mix of office, hospitality, retail and residential space.

Hines and TUDC, a wholly owned subsidiary of Tufts University, are developing a 49-story, 1 million-square-foot office tower in their South Station project, which also features a hotel and residential space. Completion of the office tower is scheduled for 2010.

Boston Properties is completing the redevelopment of Russia Wharf, located at Atlantic Avenue and Congress Street. This project will consist of an office tower, as well as a hotel and multifamily space. Commonwealth Ventures LLC will also redevelop a number of historic buildings, as well as construct several new ones, for its Channel Center development that will feature office, retail and residential space.

Despite the persistent mixed-use trend occurring in the city, several Boston developers are underway on the construction of solely office projects, such as Two Financial Center. Lincoln Property Company and ASB Capital Management are constructing the office building, which is scheduled for an early 2009 completion. These new developments will have a strong impact on the city’s office market, especially adding space to a city with an 8 percent vacancy rate. The new construction will increase availability and slow rent spikes for existing properties, and some of the developments will reinvigorate the areas in which they are being developed.

New office tenants are entering an office market with Class A rental rates ranging from $60 to $90 per square foot/year, a large increase from the fourth quarter 2006 average rental rate that measured $37.56 per square foot.

Tenants that are absorbing a majority of the office space in Boston include Ropes & Gray, Eaton Vance and Putnam. Several notable leases have been signed recently, including Eaton Vance’s lease of space in Two International Place, Travelers Insurance’s lease at 100 Summer Street and JPMorgan’s lease at One Beacon Street.

With no slowdown in sight for the robust investment sales market, rents are expected to continue to trend upward. Also, there is little new supply that will be delivered until late 2010 to 2011, which will have downward pressure on vacancy and availability.

Looking into the second half of 2007 and into 2008, developers and brokers should keep an eye on the South Boston Waterfront for new office development. Due to space limitations, developers are making the most of what they have and creating projects that combine a variety of uses while responding to the demand for more office space in Boston.

— Jason R. Cameron is the associate director for Jones Lang LaSalle in Boston.

©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

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