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Friday, February 20, 2009
Inside Real Estate
Firms flee Boston, Cambridge; head West to suburbs
By Bridget Botelho, Special to Mass High Tech
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Having a Boston or Cambridge address may be losing its appeal for technology companies; it appears many are forgoing the cachet of a Boston address in favor of more space at lower costs in the suburban west along Route 128 and the Mass Pike, according to technology real estate experts.
Meanwhile, landlords in the city feel pressure to lower rents, and tech companies may have a stronger leg to stand on when it comes to lease negotiations.
Though rents in Boston and Cambridge are slowly starting to creep down, these spaces continue to sell at a premium. Because of this, the western suburbs along Route 128 and toward Interstate 495 seems to be catching more and more Boston/Cambridge defectors who either need more space than the cramped cities have to offer and want lower rents to relieve their budgets.
One real estate company on both sides of the fence is The Beal Companies LLP of Boston. Beal owns One Kendall Square in Cambridge, a 700,000-square-foot mixed-use development and other life sciences properties, and One Ledgemont Center in Lexington, adjacent to the intersection of Routes 2 and 128. One Kendall Square currently has about 100,000 square feet of empty space, while Beal’s properties outside the city are quickly filled by companies from Boston and Cambridge in search of more affordable space, said Robert Doherty, vice president of leasing and brokerage at Beal.
“Some rents in Cambridge were being quoted between $80 to $90 per square foot last year, because supply is typically limited there, but at places like One Ledgemont, rents range from $20 to $30 per square foot,” Doherty said.
As a general rule, space in Boston and Cambridge is typically priced $10 per square foot more than spaces along Route 128, while closer to Interstate 495, space is about $20 per square foot cheaper than in the city, said Greg Hoffmeister of T3 Advisors, a tenant representative and brokerage firm in Boston and Waltham that specializes in helping tech companies find space. So, a move from a 15,000-square-foot space in Boston to a similar space close to Interstate 495 costing $20 per square foot less would add up to a $300,000 savings per year.
Primarily, technology companies are migrating from Cambridge and Boston westward to Waltham, Newton, and Burlington, because these locations offer a reasonable commuting solution and an amenity package somewhat representative of an urban environment, explained executive vice president Dan Cordeau of commercial real estate firm Jones Lang LaSalle Inc. in Boston.
Some prominent Cambridge deserters include Shire Human Genetic Therapies, which moved its headquarters from Cambridge to Lexington last year, and Altus Pharmaceuticals Inc., which moved its headquarters to a Waltham office park, also last year. A number of smaller biotech companies followed suit, according to experts.
When Beal purchased One Kendall Square in 2006, Genzyme Corp. was in the process of moving out. This posed an opportunity to add more, smaller tenants to the space and squeeze more profits out of it, but about 100,000 square feet of vacancy remains today, Doherty said.
“A lot of the larger life sciences companies that are in a (later stage of life) don’t need to be in the downtown area — they can go outside the city for cheaper rents. And when you see companies like Shire going to the ’burbs, it becomes acceptable to do,” Doherty said.
Landlords are likely to continue losing tenants throughout 2009 due to company downsizing and bankruptcies, and feel pressure to lower prices to attract new tenants, Hoffmeister said. The Beal Companies, for instance, lowered some rents in the last quarter of last year, Doherty said.
According to the Jones Lang LaSalle’s research, tenants are approaching leasing decisions with extreme caution and renewals have become increasingly popular.
Many of the companies that are in leases they signed four or five years ago expect to get their leases renewed at lower prices, or they can find less expensive space once their lease is up, though rents drop much slower than tenants expect, Hoffmeister said.
“We are seeing everything from growth-driven moves to short- and long-term lease extensions, and we expect to see more subleasing as companies struggle to stay alive,” Cordeau said.
Despite the moves out of the downtown areas, Greater Boston is still very much an important place for technology companies, and many continue to invest in space there; Merrimack Pharmaceuticals Inc., for instance, added about 20,000 square feet of space to its One Kendall Square location last year, Doherty said.
And it may be that the appeal of the western suburbs will fade when market dynamics improve, experts say, because the pros of being in Boston and Cambridge are many. The proximity to young talent from nearby universities, access to public transportation, and the prestige factor of having a Cambridge address are all important to technology companies.
Bridget Botelho is a freelance writer in Warwick, R.I.
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