John Preotle stepped past a pack of construction workers, up a set of dusty concrete steps, around a pile of boxed bathroom fixtures, and toward a bank of seven-foot windows. He pointed at the Malden River, Tufts University’s new boathouse, and, a few miles downstream, the Tobin Bridge and Boston skyline.
“There’s nothing like this in Greater Boston,” Preotle said.
He spoke quickly, and enthusiastically. A few times, he interrupted his pitch, saying, “I hope I’m not just selling myself here. But I don’t think so.” So the pitch went on. He sold seven-foot windows; high ceilings; lots of natural light; flexible floor plans; a first-floor café and fitness center; LEED Gold pre-certification; frontage on the river; a beautiful, award-winning new park; housing, retail, restaurants and the T just steps away.
“It’s the whole package,” he said.
Preotle, Lane and Assoc., will soon deliver 120,000 square feet of Class A office space at River’s Edge in Medford to market. The developers have plans for two more office buildings on the site, and believe that, in the long run, River’s Edge can absorb much more than the 440,000 square feet it’s currently permitted for.
But right now, Preotle is still searching for his first tenant. And he’s not alone. More than 875,000 square feet of commercial space is currently under construction in the Route 128 belt, between Needham and Beverly. Those buildings are going vertical as rents are softening, sublease space and vacancies are growing, and tenants are deferring moving decisions. Tenants feel uncertainty about their own futures, and the wider economy, so they’re taking short-term lease renewals – even if those renewals come at a premium.
And at the same time, many developers are finding great success in the suburbs.
More than 500,000 square feet of new Class A office space came online in Waltham in late 2008; the buildings were delivered fully leased. Last May, Adobe inked a $44.7 million deal for new space at Overlook Center in Waltham. Palomar Medical is building a 130,000-square-foot facility on Network Drive in Burlington. And, recession be damned, Biogen is moving its headquarters to a new, 350,000-square-foot, build-to-suit Weston building to be constructed by Boston Properties.
Many brokers have seen a flight to quality. Boston Properties recently opened 77 CityPoint in Waltham. At a recent Building Owners and Managers Association briefing, Boston Properties project manager Richard Monopoli said the 200,000-square-foot building drew strong interest because of its amenities and sustainable design. “Everybody’s looking for good deals, but if you’re looking for Class A, great space, great site, LEED certified, you’re probably a little less price sensitive on the margins,” he said.
“With new construction, you know going in that you’ll be on the higher end of the rent spectrum,” said Chip Batchelder of Wyman Street Advisors. Wyman is leasing 175 Wyman St., a 336,000-square-foot Waltham office complex currently under construction, for Hobbs Brook Management. The site was said to have been a possible landing spot for Biogen. Now it, too, is searching for an anchor.
“The people we’re talking to know they’ll be on the high end for rent, and also for quality,” Batchelder said, adding “LEED is an amenity. If you’re not doing it, you’re not keeping up.”
Tamie Thompson, a managing director with Jones Lang LaSalle, said she sees tenants pricing out new space against existing, and Class A against Class B, across several different submarkets, and then repeating the process.
“It’s really hard to make a decision.”
She also said leasing may be breaking along town lines: Waltham space has been absorbed quickly, while more than 400,000 square feet remains available at TradeCenter 128 in Woburn. Asking prices at that building were recently slashed by $8.
Joe Sciolla, managing principal at CresaPartners, sees no new demand for several quarters.
“There’ll be very slow absorption,” he predicted. “It’ll be 2010 before you see tenant demand pick up. Without that, you’re not going to lease these properties. Rental rates are still high, based on what tenants really want to pay for rent.”
At River’s Edge in Medford, Preotle remains optimistic.
“If we end up leasing 5,000 square feet at a time, it’s going to take awhile. That’s not the plan,” Preotle said. Since his site is scalable, he sees River’s Edge as a headquarters campus for a large tenant – possibly one lured from Cambridge.
“It’s a lifestyle site,” he said. “Initially, there was a lot of interest, pre-construction. And over the last four or five months, if you don’t have to make a decision, you won’t. But the sense is, the response is positive, and each time somebody comes out, there’s more to see.”
