Mayor's skyscraper call met with tepid reaction
Boston Business Journal - February 24, 2006
by Michelle Hillman
Journal Staff
A new tower in the Financial District is a grand idea in principle, say many real estate observers, but the current reality in the commercial market will produce few takers for Mayor Thomas Menino's invitation to build the city's tallest building.
The suggested height of the tower -- about 70 to 80 stories -- is problematic, and the location is not ideal, say industry critics. Moreover, the demand for office space is predicted to level off, according to the Boston-based real estate research firm Property & Portfolio Research Inc.
"Frankly, it is not really clear to me where the demand would come from to fill a tower, especially of that size," said Paul Briggs, senior real estate economist at the firm. "I don't see how, economically, it works. I think for the mayor to come out and say the city needs more office space -- it really shows he is out of touch with the (real estate market)."
Although last year the office market improved -- ending with 1.5 million square feet of positive absorption in Boston -- the next few years ahead may be stagnant, in part because many deals have executed early, said Briggs. The firm predicts a slowdown in markets like Boston, where demand for space has outpaced job growth. In Boston, the market may see its absorption rate cut by 1 million square feet, Briggs says.
The tower itself would likely produce more than 1 million square feet. While 500,000-square-foot office buildings like Russia Wharf are on the drawing board, they present less risk than a 1 million-square-foot development, said Briggs. In order to fill a new building, tenants would have to be poached from existing buildings.
While a handful of developers may be eager to reshape the Boston skyline, others point out that the site itself is challenged and the market is not yet ready for such a bold statement.
"I think there are a lot of questions about the potential size of this," said David Begelfer, chief executive officer of the Massachusetts Chapter of the National Association of Industrial and Office Properties.
The tower would be built where a city-owned parking garage currently stands at 115 Federal St. -- sandwiched between 75-101 Federal St. and 133 Federal St. overlooking Winthrop Square and the Financial District. Detractors say the building would not have a view for the first 30 stories and would not match the Winthrop Square and Arch Street corridors that border Downtown Crossing. Some, including architect Roger Shepley, whose office is in Winthrop Square, believe a park or cultural use would be more appropriate.
Few developers are willing to move forward with speculative office development, despite recent gains the office market has made in reducing vacancy. According to Spaulding & Slye's fall 2005 office tower report, Boston's vacancy rate in towers in the Financial District was 10.5 percent and a healthy 7.9 percent in the Back Bay. Those figures do not include tower space available for sublease, which brings the rate to 14.9 percent and 16.6 percent respectively.
Aside from location and market conditions, cost is a consideration.
The tower would cost about $500 million to develop with the land costs estimated to be about 10 percent to 15 percent of the total development cost, said John B. Hynes III, managing partner of the New Jersey-based The Gale Co. Hynes has said he's interested in the site and would propose 750,000 square feet of office and about 500,000 square feet of other uses -- residential, say, or a hotel. In order to justify cost of construction, Hynes estimated rents would average about $60 per square foot for office space. Finding capital in 2007 to build a tower would be a challenge, he said.
Though some developers aren't willing to move forward, some believe it is the right time for the mayor to get the word out now since the tower wouldn't come online for three to five years.
"It's early because demand is just beginning to swing in the right direction," said John Drew, who has a site set aside in South Boston for the future 450,000-square-foot office tower called World Trade Center South. "It's a good time for the mayor to start talking."
http://www.bizjournals.com/boston/stories/2006/02/27/story7.html
Boston Business Journal - February 24, 2006
by Michelle Hillman
Journal Staff
A new tower in the Financial District is a grand idea in principle, say many real estate observers, but the current reality in the commercial market will produce few takers for Mayor Thomas Menino's invitation to build the city's tallest building.
The suggested height of the tower -- about 70 to 80 stories -- is problematic, and the location is not ideal, say industry critics. Moreover, the demand for office space is predicted to level off, according to the Boston-based real estate research firm Property & Portfolio Research Inc.
"Frankly, it is not really clear to me where the demand would come from to fill a tower, especially of that size," said Paul Briggs, senior real estate economist at the firm. "I don't see how, economically, it works. I think for the mayor to come out and say the city needs more office space -- it really shows he is out of touch with the (real estate market)."
Although last year the office market improved -- ending with 1.5 million square feet of positive absorption in Boston -- the next few years ahead may be stagnant, in part because many deals have executed early, said Briggs. The firm predicts a slowdown in markets like Boston, where demand for space has outpaced job growth. In Boston, the market may see its absorption rate cut by 1 million square feet, Briggs says.
The tower itself would likely produce more than 1 million square feet. While 500,000-square-foot office buildings like Russia Wharf are on the drawing board, they present less risk than a 1 million-square-foot development, said Briggs. In order to fill a new building, tenants would have to be poached from existing buildings.
While a handful of developers may be eager to reshape the Boston skyline, others point out that the site itself is challenged and the market is not yet ready for such a bold statement.
"I think there are a lot of questions about the potential size of this," said David Begelfer, chief executive officer of the Massachusetts Chapter of the National Association of Industrial and Office Properties.
The tower would be built where a city-owned parking garage currently stands at 115 Federal St. -- sandwiched between 75-101 Federal St. and 133 Federal St. overlooking Winthrop Square and the Financial District. Detractors say the building would not have a view for the first 30 stories and would not match the Winthrop Square and Arch Street corridors that border Downtown Crossing. Some, including architect Roger Shepley, whose office is in Winthrop Square, believe a park or cultural use would be more appropriate.
Few developers are willing to move forward with speculative office development, despite recent gains the office market has made in reducing vacancy. According to Spaulding & Slye's fall 2005 office tower report, Boston's vacancy rate in towers in the Financial District was 10.5 percent and a healthy 7.9 percent in the Back Bay. Those figures do not include tower space available for sublease, which brings the rate to 14.9 percent and 16.6 percent respectively.
Aside from location and market conditions, cost is a consideration.
The tower would cost about $500 million to develop with the land costs estimated to be about 10 percent to 15 percent of the total development cost, said John B. Hynes III, managing partner of the New Jersey-based The Gale Co. Hynes has said he's interested in the site and would propose 750,000 square feet of office and about 500,000 square feet of other uses -- residential, say, or a hotel. In order to justify cost of construction, Hynes estimated rents would average about $60 per square foot for office space. Finding capital in 2007 to build a tower would be a challenge, he said.
Though some developers aren't willing to move forward, some believe it is the right time for the mayor to get the word out now since the tower wouldn't come online for three to five years.
"It's early because demand is just beginning to swing in the right direction," said John Drew, who has a site set aside in South Boston for the future 450,000-square-foot office tower called World Trade Center South. "It's a good time for the mayor to start talking."
http://www.bizjournals.com/boston/stories/2006/02/27/story7.html
