Up, Down
Struggling Back Bay office market is losing tenants to other areas
By Susan Diesenhouse, Globe Correspondent | July 17, 2004
While leasing in the Newbury Street retail market may be thriving, the Back Bay office market that surrounds it is struggling to stay afloat, with tenants relinquishing more space than they're taking, area brokers said.
So far this year, of the 14 million square feet of Back Bay office space, tenants have given up 212,000 square feet more than they've leased, said William Motley, a senior vice president at Spaulding & Sly Colliers. By midyear, about 14.9 percent of Back Bay office space was available for lease or sublease, compared to 5.6 percent at the end of 2000.
While the average asking rent is now about $33 per square foot, four years ago it was $63.55. Those high rents were fueled by avid demand as growing businesses leased 843,000 square feet more office space than they put back on the market, Motley said.
The Back Bay is still stronger than the overall Boston office market, where 17.5 percent of the space is available, and heartier than all other submarkets except Charlestown and South Station. For instance, the availability rate at the South Boston waterfront is 19.1 percent; in the Financial District, it's 18.9 percent, Spaulding & Slye reports.
It is precisely the weakness in the Financial District, still considered the city's prime office location, that is drawing tenants away from the Back Bay.
"When the market was very tight, the Back Bay was an alternative to the Financial District, but that's no longer the case," said Jay Driscoll, senior director at Cushman & Wakefield Inc. In 2000, a tenant could save $15 to $20 a square foot by moving from the Financial District to the Back Bay, but now rental rates are much closer, he said.
Later this summer, American Student Assistance, a nonprofit company that processes student loans, will vacate the 110,000 square feet it occupies in a building it owns at 330 Stuart St. to move into 138,000 square feet at a newly renovated 100 Cambridge St. near Government Center.
Janine Greenwood, ASA general counsel, explained that the company, which hopes to sell 330 Stuart St., "couldn't find a large enough block of contiguous space in the Back Bay.
"We wanted to stay in the city, have access to public transit, at a good price, in a building with large floorplates," she added.
In a similar move, the marketing firm Digitas, which now occupies about 250,000 square feet at 800 Boylston St. in the Prudential tower, will next year move into 200,000 square feet at the newly built 33 Arch St. in the Financial District for a comparable rent, brokers said.
Once that occurs, Driscoll said, 800 Boylston will be about 40 percent vacant. The one-year-old 131 Dartmouth St. is now about 50 percent vacant and 501 Boylston is about 40 percent vacant.
Another cloud could darken the Back Bay office market next fall when the merger is completed between Manulife Financial Corp. and John Hancock Financial Services Inc. if the latter vacates some of the approximately 1.4 million square feet that it now occupies in four Back Bay office buildings.
But the silver lining is that the city's office supply isn't growing. To the contrary, about 1 million square feet of Class B offices are being taken off the market for conversion to residences. Also, no new offices are being built. "The development process here is long enough that people put the brakes on when the economy weakens," Driscoll said. "In other cities, they just keep building."
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