The New Office/Lab Thread

[stellarfun]

As remote work takes hold, Boston’s office market starts to wobble - The Boston Globe

Vacancy rates are at near-two-decade highs, and there are growing concerns that defaults and devaluations could ripple through the economy.

www.bostonglobe.com

Office vacancy across Boston, Cambridge, and the suburbs has risen, with the regional vacancy rate hitting 19.1 percent at the start of this year, its highest in nearly two decades, according to real estate firm JLL. Companies such as Verizon, Cengage, and Duck Creek Technologies are putting blocks of underutilized space up for sublease. And even corporate tenants who are looking for new office space are looking for less of it, as hybrid work policies have become routine.

Those impacts are rippling through the city’s office market. Just in the first three months of the year, companies in Greater Boston vacated more than 1.5 million square feet of office space — nearly a full Hancock Tower’s worth. And experts forecast more pain is ahead.

The squeeze is not being felt equally. Newer, Class A towers — think One Congress and One Post Office Square — are still drawing blue-chip tenants, while older Class B and C space increasingly looks less attractive. Of the 560,000 square feet in leases signed in Boston’s central business district in the first quarter, nearly 95 percent were in Class A buildings

And while this trend has been underway downtown for some time, these pressures are building in the suburbs too, where there are now about 4.5 million square feet of sublease space — space which a company has under lease but is offering to other tenants — on the market

Boston’s talented workforce has long been the bedrock of the city’s economic success, said JLL’s Daniels. Officials at both the city and state levels are focused on maintaining that competitive edge.

“In a downturn, people tend to return to where it works, and where they can get great employees,” Daniels said. “While we’re certainly having a different time than we had two or three years ago, and it’s not all rainbows and lollipops here, there’s reason to be optimistic.”

Several great images in this article. One of which is below:

Credit, Boston Globe.

It seems that during the golden hour, Boston's buildings turn orange.

 

[Justbuildit]

Shocked, SHOCKED, that office parks in Woburn and Framingham are going to be decimated over the coming years.

The one good thing much of the lower class office space in Boston has going for it is it’s often in older buildings with manageable floor plates. I know there’s a push to accelerate commercial to residential conversions and hopefully it’s exactly these buildings that are incentivized to be converted first. Throughout downtown (especially Summer, Washington, and a few other branching streets) there are some handsome-if-neglected pre-war buildings that would be perfect for this. 453 Washington and 80 Summer are good examples, and there’s so more on the Ladder Blocks that seem reasonable. Don’t see much hope for outlying suburban office parks though.

 

[DBM]

Shocked, SHOCKED, that office parks in Woburn and Framingham are going to be decimated over the coming years.

The one good thing much of the lower class office space in Boston has going for it is it’s often in older buildings with manageable floor plates. I know there’s a push to accelerate commercial to residential conversions and hopefully it’s exactly these buildings that are incentivized to be converted first. Throughout downtown (especially Summer, Washington, and a few other branching streets) there are some handsome-if-neglected pre-war buildings that would be perfect for this. 453 Washington and 80 Summer are good examples, and there’s so more on the Ladder Blocks that seem reasonable. Don’t see much hope for outlying suburban office parks though.

453 Washington & 80 Summer both got the residential conversion treatment years ago, as did a fairly good number of other Ladder District properties. The low-hanging fruit got converted in the aftermath of the 2007-09 crash--8 Winter, 407 Washington, The Conrad, and others.

What's left is, by definition, properties that weren't so ripe for conversion, when the 2010s boom for them took place--and therein lies the immense challenge. If the less-desirable ones weren't exploitable during the immensely favorable economic conditions of the 2010s, then... how can they be converted now, with interest rates through the roof, etc., absent a massive (and thus highly unpopular?) government subsidy?

 

[Justbuildit]

If the commercial real estate market is slowing, then the threshold for what’s “ripe enough to convert” also changes. If all new leases are filtering up the quality spectrum then those class C or whatever buildings will be less desirable and at risk of staying vacant for longer than the owners can bear, especially the small and independent shops. Considering the average residential price per sq ft in 2023 vs 2010, it’s at least favorable to potential returns.

Enter the government. Admittedly the one analysis in this article identified only about a dozen buildings even worth converting, and the BPDA is just considering incentives at this time. My only point is that incentives may stack to the point where this makes sense for a small number of conversions rather than vacant offices that end up derelict.

Boston explores converting office buildings into housing, but challenges abound - The Boston Globe

The concept of converting space in Greater Boston isn’t new, but it’s a post-pandemic priority for the Wu administration, which is aiming to inject energy into the city's downtown core.

www.bostonglobe.com

Buildings that have typically been converted in Greater Boston, Liu said, have been older, turn-of-the-century properties, such as three Ladder District buildings included in the Downtown BID report, at 37 Temple Place, 44 Winter St., and 6 Hamilton Place. What’s new in this latest push for office-to-residential conversions is looking at the feasibility of converting 1970s and 1980s-era offices, he said.


More of those younger buildings are finding it harder to lure tenants as the global commercial real estate industry faces headwinds unseen in decades. The gulf in demand between high-quality Class A office assets and lower-quality offices “perhaps has never been wider,” according to a 2023 global commercial real estate outlook from the Deloitte Center for Financial Services. Office owners have to consider making upgrades or conversions to their properties “or risk obsolescence,” the report said.


The original linked article referenced a Lincoln St property that will likely be sold for a substantial loss. A cooling in the market prices also pushes the incentives towards flexibility and lower risk, which is probably in favor of residential, interest rates notwithstanding.

 

[DZH22]

If the less-desirable ones weren't exploitable during the immensely favorable economic conditions of the 2010s, then... how can they be converted now, with interest rates through the roof, etc., absent a massive (and thus highly unpopular?) government subsidy?

The same way I have been arguing for years, by allowing facadectomies in exchange for significant height built on top. Keeps the historic facades intact at street level while allowing the city to grow the way it has needed to in the 21st century.

 

[DBM]

The same way I have been arguing for years, by allowing facadectomies in exchange for significant height built on top. Keeps the historic facades intact at street level while allowing the city to grow the way it has needed to in the 21st century.

I hear you--but it's interesting to note that the story JustBuildIt quoted said it's time to look at "1970s and 1980s-era offices."

OK, let's look at some of the 1970s and 1980s-built office towers in Downtown (all dates built supplied by Wikipedia).

100 Federal: 1971
Federal Reserve: 1976
One Boston Pl.: 1970
One Financial Ctr.: 1983
One Federal: 1975
60 State: 1977
28 State: 1970
One Beacon: 1971

Exactly none of which are suitable for the program you propose. Which is not to belittle your suggestion at all; rather, I'm just pointing out how amazed I am that that report cited "1970s and 1980s-era offices," as those towers, on initial blush, seem the absolute least amenable to programs like that which you propose.

Did you have any particular ones in mind? Curious...

 

[bigpicture7]

I hear you--but it's interesting to note that the story JustBuildIt quoted said it's time to look at "1970s and 1980s-era offices." OK, let's look at some of the 1970s and 1980s-built office towers in Downtown (all dates built supplied by Wikipedia). 100 Federal: 1971 Federal Reserve: 1976 One Boston Pl.: 1970 One Financial Ctr.: 1983 One Federal: 1975 60 State: 1977 28 State: 1970 One Beacon: 1971 Exactly none of which are suitable for the program you propose. Which is not to belittle your suggestion at all; rather, I'm just pointing out how amazed I am that that report cited "1970s and 1980s-era offices," as those towers, on initial blush, seem the absolute least amenable to programs like that which you propose. Did you have any particular ones in mind? Curious...

I see it more in terms of a "great migration" across the entire system of buildings: those who remain among the "lower rent" B & C class office tenants move out of the historic structures and into these '70s/'80s structures, which become the new lower rent district. Meanwhile, the historic lower rent office buildings become the facadectomy candidates DZ speaks of. Some of those '70s/'80s structures will be candidates for modern-day Class A re-do's, just like 1 Post Office Square, and maybe another (quite) small number are residential conversions.

 

[DZH22]

Did you have any particular ones in mind? Curious...

I was thinking more about the really old ones. For instance, the Dainty Dot and Shreve Crump and Lowe buildings would have been perfect candidates. The one razed for the Whoop(s) building in Kenmore would have been another good candidate for a facedectomy with additional height, regardless of the final use. Would have preferred a 25 story office building to what we got.

To solve the shorter floor-to-ceiling issues with some of the older buildings, I'd say they should make the podium floors double height compared to the old buildings. For example, the Fenway building in the front left razed for Whoop(s) could have remained, with the 6 floors turning into a 3 story "grand" podium, with as much height as possible allowed on top to pay for this and make it worth it to developers. Obviously this is an opposite example of the office-to-residential we are now proposing, but we need to save these older facades any way we can.

A project like Quaker Lane would have been perfect to pave the way for more (relatively) massive residential towers downtown. I love that project but, if all else stayed the same, would it have really been an issue if one side of it was built up to 650' instead of just adding about half a dozen floors of office?

Basically, anytime one of these older buildings is truly at risk of being torn down, we should build to max FAA allowances in exchange for a full facadectomy plus whatever amount of affordable units the city needs. This simultaneously addresses 3 major issues:
1. Preservation of street level character by maintaining the old facades.
2. Build high density residentials in a highly dense downtown area.
3. No tax breaks or outflow of incentives from the city to the developer.
4. (subjective bonus) Taller buildings look better/cooler than fat garbage buildings.

 

[Justbuildit]

I hear you--but it's interesting to note that the story JustBuildIt quoted said it's time to look at "1970s and 1980s-era offices."

OK, let's look at some of the 1970s and 1980s-built office towers in Downtown (all dates built supplied by Wikipedia).

100 Federal: 1971
Federal Reserve: 1976
One Boston Pl.: 1970
One Financial Ctr.: 1983
One Federal: 1975
60 State: 1977
28 State: 1970
One Beacon: 1971

Exactly none of which are suitable for the program you propose. Which is not to belittle your suggestion at all; rather, I'm just pointing out how amazed I am that that report cited "1970s and 1980s-era offices," as those towers, on initial blush, seem the absolute least amenable to programs like that which you propose.

Did you have any particular ones in mind? Curious...

I was also struck by the 70s/80s reference in the article but they didn't disclose the list of lead candidates that came out of Gensler's study (and I couldn't find any more details online). Since nearly all of the analyzed buildings failed the first cut, I'm guessing they're not buildings that have a deep floor plate like 1 Financial Center.

It's also not clear in the article I linked that the sole focus of the survey was buildings from the 70s and 80s, but rather it's the first time these buildings have been included in such a study. It could be that the finalists from that study were all prewar buildings analogous to the ones I mentioned before. Anyways, I agree it would be a huge mistake to think the buildings you mentioned above would be easy or sensible residential conversions. I also think they're much better insulated from total oblivion than some Route 128 Office Park in Bedford or whatever. Downwards pricing pressure is bad, but it's nothing like a complete absence of demand.

 

[DBM]

I was also struck by the 70s/80s reference in the article but they didn't disclose the list of lead candidates that came out of Gensler's study (and I couldn't find any more details online). Since nearly all of the analyzed buildings failed the first cut, I'm guessing they're not buildings that have a deep floor plate like 1 Financial Center.

It's also not clear in the article I linked that the sole focus of the survey was buildings from the 70s and 80s, but rather it's the first time these buildings have been included in such a study. It could be that the finalists from that study were all prewar buildings analogous to the ones I mentioned before. Anyways, I agree it would be a huge mistake to think the buildings you mentioned above would be easy or sensible residential conversions. I also think they're much better insulated from total oblivion than some Route 128 Office Park in Bedford or whatever. Downwards pricing pressure is bad, but it's nothing like a complete absence of demand.

What's wonderful about Downtown Boston, for analyses like these, is that we have such a rich portfolio of office properties clustered within such distinct architectural/engineering eras. Think about the fact that we have so many office towers--literally dozens!!--still being used, perfectly occupiable, built from 1873 (post-Great Fire building boom) to 1900.

The cohort from 1901-1928 is equally impressive, at least in size, and though it might not be so flamboyantly expressive as the 1873-1900 set, it still contains all those Beaux Arts and Art Deco gems, so... also, it's not entirely true that nothing was built from 1929-1968 or so, there are some fascinating office towers from that time (133 Fed., etc.), just not many. Then the modern age...

I'd love to read a graphical illustration of which Downtown office properties from 1873-today were built when, accompanied by an appendix of illustrating "best in breed" from each decade. Now that I think about it, someone could really do a sumptuous coffee-table book on that.

 

[stellarfun]

Re: Whoop and CITGO

Although Boston Mayor Marty Walsh vetoed the Boston Landmark Commission’s vote to make the sign an official city landmark in 2018, he made an agreement at the same time that insured the sign will stand for decades to come. Citgo Petroleum Corp and developer Richard Beal signed a 30-year term to keep the sign in Kenmore Square.

https://www.mlb.com/news/boston-red-sox-history-citgo-sign
So no tall building blocking the sign, probably until (and if) the sign comes down.

Re; Shreve Crump and Low.

A taller building would cast new shadows on the Public Garden, which is prohibited, and shadows on the Tiffany windows on the landmarked Arlington St. church. The church was strongly opposed to any Drucker building on the Shreve Crump and Low site that would cast shadows on these windows.

https://friendsofthepublicgarden.org/2017/01/11/shadow-legislation-summary/
https://www.bostonherald.com/2008/08/12/shadow-over-shreves/

 

[bigpicture7]

Seems like some solid news for the inner belt area:

Battery Maker Leases 100K-SF Somerville Office Space - Connect CRE

Somerville-based battery maker Form Energy has leased nearly 100,000 square feet of space at 200 Inner Belt Road in East Somerville, reported by Boston Business Journal. The lease agreement is for three years, and the company plans to move its employees to the new location this fall. Form Energy...

www.connectcre.com

 

[Brick Top]

The once-hot market for biotech jobs and lab space has cooled. What now?

https://www.bostonglobe.com/2023/07/26/business/boston-biotech-market/ (unpaywalled link here)

From the article:

Nick Amarante, senior vice president at the corporate real estate adviser Hughes Marino, sees the same downturn through the lens of real estate, where empty lab space is piling up far too quickly.

At any given time in 2021, he says, there were companies in the market seeking to lease between 6 and 8 million square feet of lab space in Greater Boston. Since then, demand has “fallen off a cliff.” Companies are currently seeking between 1 and 1.5 million square feet, which, he says, is below pre-pandemic levels.

Instead of tenants clamoring for labs, landlords with labs are clamoring for tenants. And they are cutting some very generous deals. But landlords may be in for even more pain ahead. [...] More than 15 million square feet of additional lab space is scheduled to get built out in Greater Boston over the next three years, Amarante says. “The key point,” he notes, “is that only about one-third of this is pre-leased.”

A couple of years ago, constructing lab space seemed like a great bet. Now, construction costs are high and biotechs are more likely to be cutting back on space than ramping up.

(emphasis mine)

It will be interesting to see if/how large lab buildings that haven't yet broken ground will pivot. Given that demand for office space has also cratered, here's to hoping they'll build housing instead, petitioning for rezoning when necessary.

 

[Suffolk 83]

The once-hot market for biotech jobs and lab space has cooled. What now?

https://www.bostonglobe.com/2023/07/26/business/boston-biotech-market/ (unpaywalled link here)

From the article:

(emphasis mine)

It will be interesting to see if/how large lab buildings that haven't yet broken ground will pivot. Given that demand for office space has also cratered, here's to hoping they'll build housing instead, petitioning for rezoning when necessary.

This was blatantly predictable but its still surprising how fast it has 180'd

 

[Justbuildit]

Great time to be in the market for lab space though. Will be curious if the venture pace starts to pick back up and whether this glut of vacancies remains so accessible. I would not want to breaking ground on a new lab building in some inner ring suburb though…

 

[bigpicture7]

This was blatantly predictable but its still surprising how fast it has 180'd

It's all unsurprising and it's all, frankly, mundane. The business world received an extraordinarily abrupt exogenous shock when the pandemic first hit, yet, at the time of the pandemic's onset, financing was super cheap and money was plentiful. Rather than say "you know what, let's just stop working for a while" (which, of course they weren't going to do when money was cheap), they did exactly what you'd expect them to do and transferred that overflowing cash spigot to the next easiest thing they could get approved and sell the quickest in the Boston area: labs. Yet 2021-2022 was a really messed up time for the economy: everyone with money (consumer and commercial) overspent on stuff they didn't need due to the entrapment of the pandemic messing with our sense of reality (when you can't DO anything, you buy furniture or hire 1,000 excess remote workers, apparently), leading to the most pronounced spike in inflation we've seen in 40+ years and to the Fed slamming on the brakes on the economy faster than we've seen in a generation. Financing is near impossible to get, every business I know is in "tread carefully and see what's next" mode, ALL development markets have slowed down considerably.

There's only one thing that's interesting here: because it is SO freaking hard to build housing in greater Boston (zoning, parking mins, FAR restrictions, etc), developers refused to toggle the money spigot to Housing in 2021-22, and instead made a mad rush to labs. THAT is the real problem, not anything specific about our biotech economy.

 

[bigpicture7]

In the beforetimes this wouldn't be worthy of a post. But here we have a major tenant who sustained all of their square footage (300k+ sf) in a 10-year lease renewal. They are not full time in-office; rather, they do 3-day hybrid, according to the article. The reason this is interesting is: in the broader trend, companies doing synchronous hybrid have also been trying to shed square footage. That makes no sense. Yes, let people work from home, but ALSO give them a nice office for when they come in. These companies trying to do synchronous hybrid, but shrinking their offices down to hot-desking cattle pens, are doing nothing more than exploiting cost-shedding opportunism to improve the optics of their accounting books as afforded by the present cultural moment. That's not doing right by employees. Full-time in-office and synchronous hybrid should equal the same square footage; if anything, people should be getting more space than the 2019 trends.

MFS extends lease in Back Bay - The Boston Globe

Stories you may have missed from the world of business.

www.bostonglobe.com

 

[Equilibria]

In the beforetimes this wouldn't be worthy of a post. But here we have a major tenant who sustained all of their square footage (300k+ sf) in a 10-year lease renewal. They are not full time in-office; rather, they do 3-day hybrid, according to the article. The reason this is interesting is: in the broader trend, companies doing synchronous hybrid have also been trying to shed square footage. That makes no sense. Yes, let people work from home, but ALSO give them a nice office for when they come in. These companies trying to do synchronous hybrid, but shrinking their offices down to hot-desking cattle pens, are doing nothing more than exploiting cost-shedding opportunism to improve the optics of their accounting books as afforded by the present cultural moment. That's not doing right by employees. Full-time in-office and synchronous hybrid should equal the same square footage; if anything, people should be getting more space than the 2019 trends.

MFS extends lease in Back Bay - The Boston Globe

Stories you may have missed from the world of business.

www.bostonglobe.com

Yes and no. Companies that had dedicated offices for people before 2019 may choose to consolidate into hoteled spaces (or fully open offices with quiet rooms for calls). They might have been headed this direction anyway, as it is more space-efficient and some employees do prefer it.

 

[bigpicture7]

Yes and no. Companies that had dedicated offices for people before 2019 may choose to consolidate into hoteled spaces (or fully open offices with quiet rooms for calls). They might have been headed this direction anyway, as it is more space-efficient and some employees do prefer it.

You don't need to do hoteling if you have enough desks for everyone to be there at once. Modern hoteling = oh shit, i have to pull up this app and reserve myself a desk if I want there to be a place for me when I get into the office - and I can never leave anything anywhere, not even my gym clothes, etc.

Modern hoteling pre-pandemic was about saving $$ by being able to do hiring / firing /re-orging, etc, quickly with zero overhead; it was NOT about playing the airline-style overbooking risk game of trying to manufacture some more cost savings by intentionally having too few desks.

Regardless of floor plan and open/not open style, my point is that for a given approach, there should be no difference in sq. ft. between in-person and synchronous hybrid. The snark about 2019 trends was secondary to my main point.

(And if you are going to do asynchronous hybrid, then you NEED to do hoteling, and you can get away with fewer desks ---- but asynchronous near useless and you ought to just be doing fulll WFH with occassional offsites, etc, at that point. Hence why my critique was specifically aimed at firms going from full in-person to sync. hybrid)

 

[Equilibria]

You don't need to do hoteling if you have enough desks for everyone to be there at once. Modern hoteling = oh shit, i have to pull up this app and reserve myself a desk if I want there to be a place for me when I get into the office - and I can never leave anything anywhere, not even my gym clothes, etc

Regardless of floor plan and open/not open style, my point is that for a given approach, there should be no difference in sq. ft. between in-person and synchronous hybrid. The snark about 2019 trends was secondary to my main point.

Again, while I personally agree with you, if you're an office manager it depends on the approach. If everyone is there Tu-Thu then yes, you need enough space for everyone. If you delude yourself into thinking that people will evenly distribute across all 5 days then you only need 60% of the space, and that 40% costs a lot of money in Boston. Most actual firms are probably somewhere in-between.

I get that you're praising this particular firm for having enough space to be comfortable, and I join you in that.