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Why are office towers on the rise again in Boston?Dormant plans to reshape the city's skyline come alive as firms feel squeezed for space
June 4, 2006
The office vacancy rate is in double digits, job growth is anemic, and Boston is a tough place to build a skyscraper. Yet a half- dozen office towers are in some stage of development, and two could go into construction around the end of the year.
``There is again the hope, and I underline the word hope, the city is now finally receptive to the concept of height in buildings," said Dean F. Stratouly, who developed the 33-story 33 Arch Street.
Finished in 2004, it is the last tower to open in the city, and it was famous for its inability to find tenants. The top floors are still empty.
Nevertheless, just in the past few months, dormant drawings have come alive, press releases have been cranked out about projects progressing through the serpentine environmental-permitting process, and public groups are being shown digital renderings of slim glass structures.
So why are office towers making a comeback?
After a long period of shrinkage , many companies that use office space, such as financial management firms, are looking for more space. And they're finding excess capacity is being quickly absorbed.
Companies that have 15,000 square feet of space are suddenly asking for 25,000, said Kyle B. Warwick, New England regional director of the real estate firm Spaulding & Slye, a member of the Jones Lang LaSalle group. ``That's where a lot of our growth is coming from."
Also, little new office space has been created lately. According to Spaulding & Slye , office space grew by an average of almost 1.7 million square feet annually between 2000 and 2004. But only 220,000 was added in 2005 -- while 2.1 million square feet of excess space was used up , the second highest amount ever.
Despite recent reports of people leaving the Commonwealth, office towers are filling up again. Office vacancy in the central business district fell to 11.5 percent, ``dipping below 12 percent for the first time in nearly four years," according to Grubb & Ellis Co.'s first report of 2006.
``The combination of rising rents, job creation, net absorption, and lack of big blocks of space is going to drive us toward a new office tower," said William P. Barrack, managing director of Spaulding & Slye.
Historically, Boston grew and then leveled off. The city has only one office tower of 60 floors or above, the Hancock Tower; 39 reach at least 20 stories into the sky.
Since the rebirth of downtown Boston began in the mid-1960s, towers have sprouted at the rate of one every two to two-and-a-half years. But eight years passed between Two International Place, in 1993, and 111 Huntington Ave. , in 2001.
The last office towers were completed in Boston in 2003 and 2004, but the market demand for space collapsed even before their doors opened. With no possible tower opening until at least 2009, the city will have gone a minimum of five years without new office space .
Mayor Thomas M. Menino in February challenged developers to build the almost unthinkable in modest-sized Boston: a 1,000-foot tower. It would rise on the site of a city parking garage at Winthrop Square; bids and proposals are due in the fall.
Meanwhile, the two projects that those in the industry say are closest to reality are Equity Office Properties' proposed 31-floor tower at Russia Wharf and developer Joseph F. Fallon's planned Fan Pier office ``tower" of 16 floors or so on the South Boston Waterfront (where proximity to Logan airport prohibits buildings that truly tower).
In addition, Hines Interests LP of Houston is out promoting its 40-floor Cesar Pelli skewer over South Station, and Delaware North Cos., which owns the TD Banknorth Garden, has zoning in place for two 40-story towers on the sacred ground that once held the old Boston Garden. And last month Don Chiofaro, who built giant International Place, met with City Hall officials to propose a 1.2 million-square-foot complex on the waterfront along Atlantic Avenue that would include office space and condos. The early concept is for two buildings, one a 475-foot tower.
Boston Properties has approval for more than 250,000 square feet of space in a new mid-rise tower at the Prudential Center before that 40-year-old complex is complete.
``As the market improves, clearly it is a building we'd like to build, said Edward H. Linde, chief executive of Boston Properties Inc. ``It's accelerating in the sense we're talking to potential tenants."
Tower planning is occurring despite construction costs that have zoomed up 19.7 percent in the past 27 months, according to Associated General Contractors of America, an industry group.
Most industry executives say no one will start a new project costing hundreds of millions of dollars without an anchor tenant signed up -- a big company that will take roughly half the space in a new building, possibly with the right to plaster a company name on the outside of the tower.
``Rarely will you have any project go forward completely speculatively," said David I. Begelfer, chief executive of the Massachusetts chapter of the National Association of Industrial and Office Properties.
But the number of firms out there looking for a really large block of space -- the kind that would spur a developer to get going now, so the building would be ready for a 2009-2011 move-in -- is small.
They include Ropes & Gray LLP, which occupies 350,000 square feet at One International Place, and Putnam Investments, in 250,000 at One Post Office Square. But at least five other firms will soon need between 100,000 and 200,000 square feet.
``The current marketplace has very, very few blocks of large spaces available for future tenancies," said Thomas J. Hynes Jr., president of real estate firm Meredith & Grew Inc./Oncor.
June 4, 2006
The office vacancy rate is in double digits, job growth is anemic, and Boston is a tough place to build a skyscraper. Yet a half- dozen office towers are in some stage of development, and two could go into construction around the end of the year.
``There is again the hope, and I underline the word hope, the city is now finally receptive to the concept of height in buildings," said Dean F. Stratouly, who developed the 33-story 33 Arch Street.
Finished in 2004, it is the last tower to open in the city, and it was famous for its inability to find tenants. The top floors are still empty.
Nevertheless, just in the past few months, dormant drawings have come alive, press releases have been cranked out about projects progressing through the serpentine environmental-permitting process, and public groups are being shown digital renderings of slim glass structures.
So why are office towers making a comeback?
After a long period of shrinkage , many companies that use office space, such as financial management firms, are looking for more space. And they're finding excess capacity is being quickly absorbed.
Companies that have 15,000 square feet of space are suddenly asking for 25,000, said Kyle B. Warwick, New England regional director of the real estate firm Spaulding & Slye, a member of the Jones Lang LaSalle group. ``That's where a lot of our growth is coming from."
Also, little new office space has been created lately. According to Spaulding & Slye , office space grew by an average of almost 1.7 million square feet annually between 2000 and 2004. But only 220,000 was added in 2005 -- while 2.1 million square feet of excess space was used up , the second highest amount ever.
Despite recent reports of people leaving the Commonwealth, office towers are filling up again. Office vacancy in the central business district fell to 11.5 percent, ``dipping below 12 percent for the first time in nearly four years," according to Grubb & Ellis Co.'s first report of 2006.
``The combination of rising rents, job creation, net absorption, and lack of big blocks of space is going to drive us toward a new office tower," said William P. Barrack, managing director of Spaulding & Slye.
Historically, Boston grew and then leveled off. The city has only one office tower of 60 floors or above, the Hancock Tower; 39 reach at least 20 stories into the sky.
Since the rebirth of downtown Boston began in the mid-1960s, towers have sprouted at the rate of one every two to two-and-a-half years. But eight years passed between Two International Place, in 1993, and 111 Huntington Ave. , in 2001.
The last office towers were completed in Boston in 2003 and 2004, but the market demand for space collapsed even before their doors opened. With no possible tower opening until at least 2009, the city will have gone a minimum of five years without new office space .
Mayor Thomas M. Menino in February challenged developers to build the almost unthinkable in modest-sized Boston: a 1,000-foot tower. It would rise on the site of a city parking garage at Winthrop Square; bids and proposals are due in the fall.
Meanwhile, the two projects that those in the industry say are closest to reality are Equity Office Properties' proposed 31-floor tower at Russia Wharf and developer Joseph F. Fallon's planned Fan Pier office ``tower" of 16 floors or so on the South Boston Waterfront (where proximity to Logan airport prohibits buildings that truly tower).
In addition, Hines Interests LP of Houston is out promoting its 40-floor Cesar Pelli skewer over South Station, and Delaware North Cos., which owns the TD Banknorth Garden, has zoning in place for two 40-story towers on the sacred ground that once held the old Boston Garden. And last month Don Chiofaro, who built giant International Place, met with City Hall officials to propose a 1.2 million-square-foot complex on the waterfront along Atlantic Avenue that would include office space and condos. The early concept is for two buildings, one a 475-foot tower.
Boston Properties has approval for more than 250,000 square feet of space in a new mid-rise tower at the Prudential Center before that 40-year-old complex is complete.
``As the market improves, clearly it is a building we'd like to build, said Edward H. Linde, chief executive of Boston Properties Inc. ``It's accelerating in the sense we're talking to potential tenants."
Tower planning is occurring despite construction costs that have zoomed up 19.7 percent in the past 27 months, according to Associated General Contractors of America, an industry group.
Most industry executives say no one will start a new project costing hundreds of millions of dollars without an anchor tenant signed up -- a big company that will take roughly half the space in a new building, possibly with the right to plaster a company name on the outside of the tower.
``Rarely will you have any project go forward completely speculatively," said David I. Begelfer, chief executive of the Massachusetts chapter of the National Association of Industrial and Office Properties.
But the number of firms out there looking for a really large block of space -- the kind that would spur a developer to get going now, so the building would be ready for a 2009-2011 move-in -- is small.
They include Ropes & Gray LLP, which occupies 350,000 square feet at One International Place, and Putnam Investments, in 250,000 at One Post Office Square. But at least five other firms will soon need between 100,000 and 200,000 square feet.
``The current marketplace has very, very few blocks of large spaces available for future tenancies," said Thomas J. Hynes Jr., president of real estate firm Meredith & Grew Inc./Oncor.
