When it comes to Greater Boston office space, the South is rising again – literally.
After undergoing a roller-coaster ride for much of the 1990s, with wide swings in vacancy and rental rates, communities south of Boston have rebounded strongly during the past year, so much so that several office buildings are now either in construction or preparing to break ground. Besides two buildings being developed at Crown Colony Office Park in Quincy, Lincoln Property Co. has announced plans for a 160,000-square-foot building in Quincy Center, while the Campanelli Cos. of Braintree is moving ahead with a 100,000-square-foot project in Weymouth.
“The market is frenzied, to say the least,” Cushman & Wakefield broker Joseph P. Plunkett acknowledged last week. “Demand is strong, and suddenly there’s new supply to meet that demand, and that relief is definitely welcomed by tenants.”
With just under 10 million square feet of space, the South region is certainly no newcomer to the office sector. In the 1980s, insurance companies and financial services providers such as the Putnam Cos. saw the area as a relief valve from growing Boston rents, with the Red Line and commuter rail providing public transportation options and parking ratios of five cars per thousand square feet helping lure vehicle-bound employees. Back office operations were prevalent among such companies as State Street Bank, John Hancock Mutual Life Insurance Co. and Blue Cross/Blue Shield of Massachusetts.
The regional recession affected core South market tenants especially hard and had a similar impact on real estate owners and developers, with many longtime players losing buildings as part of the dire conditions. By 1993, vacancies for Route 128 South were at 17 percent, while the average rental rate was in the $15 per-square-foot range. Activity along Interstate 495 South was even worse, with an alarming 28 percent vacancy rate and average rents plunging below $12 per square foot.
Comparatively, Cushman & Wakefield now places the vacancy rate for Route 128 South at 9.1 percent. Average asking rents have increased during the past two years by 18.4 percent to $24.04 per square foot, with Class A averaging $26.17 per square foot and Class B running at $19.14 per square foot. The I-495/South region, which includes Fox-
boro, Franklin and Mansfield, is now the tightest submarket in the suburbs, according to Cushman & Wakefield, with a 5.3 percent vacancy rate.
Lincoln Property’s Quincy Center project at President’s Place is already attracting solid interest, according to Senior Vice President John D. Miller. The Boston-based real estate firm also owns a smaller office building at Crown Colony and has seen a broader scope of tenants scouring the region of late, Miller said. Internet startups have been among those zeroing in on the President’s Place site, which would be the third building developed at the downtown Quincy complex.
“As the other markets tighten, particularly downtown Boston, Route 128 South has become a great alternative for office space,” Miller said last week. “Demand for the office space has been very strong.”
Having bought the two-building site out of foreclosure in 1996, Lincoln has not only brought occupancy from 85 percent to 100 percent, it converted more than 30,000 square feet of former retail space into office use.
“We’ve done well,” Miller said. “With any vacancies we’ve had, the space is quickly [absorbed].”
That performance has emboldened Lincoln to move ahead with the third building, a site which originally had been slated for condominiums, then was pushed as a potential hotel by city officials until Lincoln determined financing for such a use would be difficult to obtain. With the need for office space so great, Miller said that was ultimately the direction Lincoln decided to move towards.
“It really made the most sense,” he said.
Variety of Tenants
As with Miller, Plunkett said he has seen a wider variety of tenants exploring the South market. Another phenomenon he has witnessed is office tenants moving into so-called flex space, the one- or two-story buildings that have traditionally been reserved for research and development or manufacturing operations. In one recent deal, for example, CGU Insurance took 18,000 square feet of flex space at 25 Forbes Blvd. in Foxboro.
Whatever the option, Plunkett said it appears the South market could be at or near record absorption during the first quarter, a performance even more substantial given that absorption nearly quadrupled last year from 1998 to 465,000 square feet.
In some respects, the space crunch is no different than that found throughout the suburbs, but Plunkett also noted that there are several alternatives in the pipeline, especially for Class A space. Later this summer, for example, Harvard Pilgrim Healthcare is slated to vacate 235,000 square feet of space at 1200 Crown Colony Drive, while the Flatley Co. is also projecting completion of 2000 Crown Colony Drive, a 240,000-square-foot behemoth hovering over the Braintree split. Putnam is leaving behind about 150,000 square feet at Adams Place in Quincy and 50,000 square feet in Braintree as part of a consolidation move to Norwood. Reebok will leave its home in Stoughton as well with a pending move to a new Canton campus.
Given that, Plunkett said tenants might want to take a hard look at the South region in the coming months. Although it likely will not last long, he said he believes the projected additions will soften the market for Class A users.
“There’s no need for tenants to be panic stricken,” Plunkett said. “And if I was a tenant from outside the area, I’d pay some real attention to Route 128 South. It’s a great place to do business, and they do have some options for Class A space.”
Indeed, some observers said they believe the activity could be pumping in too much supply, and could result in higher vacancy rates later this year and a potential moderation of rental rates. Miller nonetheless said Lincoln is bullish on its prospects for getting the President’s Place project going, although he said it will require at least 30 percent pre-leasing to break ground.
