The following is an article published in Banker+Tradesman
Boston’s biggest office space availability isn’t found at either of the two new towers rising in Winthrop Square and Bulfinch Crossing.A rooftop crane and demolition of the rear parking garage are signs of bigger changes to come at One Post Office Square, a 41-story office tower kicking off a $300 million expansion and renovation project.
Like surgeons performing an operation as the patient goes about a normal workday, construction crews are reshaping the 39-year-old tower floor by floor. Owners are betting that the project will keep One Post Office Square in the conversation as one of Boston’s elite corporate addresses, even as the project requires them to shuffle tenants to different floors to work around the disruption.
Co-developers Morgan Stanley and Anchor Line Partners are offering nearly 800,000 square feet of office space at a time when big local tenants including Eaton Vance and Loomis Sayles are mulling their real estate options.
“It’s a big bet, and the real estate cycle makes a difference,” said Aaron Jodka, a managing director and Northeast regional research ambassador for Colliers International in Boston. “You’re at a good point in the cycle, so you can justify a go-forward move. If other buildings go vacant in the downtown, it becomes more challenging.”
The office vacancy rate in Back Bay, Financial District and Seaport stood at 8.1 percent at the end of the second quarter, according to Colliers.
Location, Amenities Tempt
Demolition of the 6-story parking garage on the rear of the building is making way for an 18-story addition, which will create huge, new 42,000-square-foot office floor plates on floors six through 18. The new parking garage below will be fully automated – a first in a Boston office building – and is designed with the potential to be converted to office space in the future. Four new outdoor terraces will tap into demand for one of the leading amenity space options, along with 61,000 square feet of new restaurant and retail space. And the dated concrete facade will be replaced by a glass curtain wall.
JLL represents ownership in leasing and is in talks with multiple potential tenants, Executive Managing Director Ben Heller said. The project has the flexibility to offer a variety of perks to new occupants, such as private roof deck access for penthouse tenants, as well as companies that lease space on the 19th and 25th floors. Most portions of the building will get bigger window lines, to take better advantage of the views of Post Office Square park.
“We’re one of the few buildings in Boston that has a front yard, and the design has been incorporating that by bringing the outdoor space to the tenants,” Heller said.
One longtime tenant, Putnam Investments, relocated to 100 Federal St. last fall, leaving behind 240,000 square feet. Others, including law firm Sullivan & Worcester and UBS Financial Services, have opted to remain and wait out the temporary disruption to take advantage of the long-term upgrades.
“We’re within walking distance of both [North and South] stations and ferries and all subway lines, so from our perspective this is the best location to be in,” said Joel Carpenter, managing partner at Sullivan & Worcester. “Our strong preference was to be where we were.”
A tenant since the 1980s, Sullivan & Worcester plans to downsize from five floors to two as it redesigns its offices to reflect law firms’ shrinking space requirements. Once the project is complete, it will occupy the 12th and 13th floors. The firm’s current lease expires in 2021, but it has a “handshake agreement” with ownership to sign a 15-year extension for the new space, Carpenter said.
UBS is remaining, and less extensive changes to the facade will take place in its portion of the building, minimizing workplace distractions, Heller said.
Redesign Offers ‘Need-to-Haves’
In filings with the Boston Planning and Development Agency, developers laid out the rationale for the most dramatic makeover of a Financial District tower in decades. Chilled beam utilities will improve energy efficiency and reduce costs that are passed onto tenants. The redesign provides 207,000 square feet of additional density in the downtown core. And new retail space and roof decks respond to current clamor for experiences outside the cubicle.
“Tenant experience [amenities] have become the new–need–to–have,” said Garrett Larivee, an executive vice president at tenant advisory brokerage McCall & Almy. “They are no longer something that differentiates you from another top building in the city. You need to do this because everyone else does it and it’s in high demand. If you have three options that fit your company, and three of them have outdoor spaces that are successful, that could rule the fourth one out.”
The neighboring Langham Hotel opted to temporarily close and perform its own makeover simultaneous with One Post Office Square’s reinvention, and will count as a key off-site amenity, said Brendan Carroll, director of intelligence for Boston-based Perry Brokerage Assoc.
“It’s directly connected to a five-star hotel, which will also be dramatically improved by the time it opens,” Carroll said. “That could make the large office blocks attractive to an international business.”
Competition from Two New Towers
The project will wrap up in 2021, just before completion of two towers at One Congress St. and 115 Federal St. that are marketing a combined 1.25 million square feet of office space.
Local tenants scouting large blocks of space in Boston include financial service firms Eaton Vance and Loomis Sayles, both of which have requirements for at least 300,000 square feet, according to commercial real estate industry sources.
Along with such traditional Financial District tenants, demand could come from life science firms that have recently shown interest in office towers. Cambridge-based Ironwood Pharmaceuticals recently leased 39,000 square feet at 100 Summer St. in Boston, and more life science firms that don’t need extensive lab infrastructure are likely to consider office towers as an alternative to vacancy-starved Cambridge, said Elizabeth Berthelette, research director for brokerage Newmark Knight Frank in Boston.
“If you’re looking at the Seaport, there’s not a ton of options unless you do a build-to-suit,” Berthelette said. “And coming across the river is definitely a discount compared with Cambridge. The trend of tenants leaving Cambridge to come to Boston will continue.”