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It’s true — a downturn is a good time to start a company.
Stymied real estate developments, financial-industry cutbacks and media implosions have been a boon to the innovation industry, as startups have snatched up prime office space in Boston at bargain-basement rates. While rates per square foot have remained relatively steady in high-tech hot spots such as Burlington, Waltham and Cambridge’s Kendall Square, Boston commercial rents have plummeted, luring entrepreneurs who in the past have preferred more traditional high-tech addresses.
In many cases, the cheapest rents can be had in the sublease market, as recently downsized companies look to fill empty office space and offset their rent obligations. The trend has enabled tenants to snatch up Class A space at Class B rates.
“This is the first time I’ve had an office with a view,” said David Friend, CEO of Carbonite Inc. The 4-year-old consumer data backup company moved into two floors of the office tower on the Christian Science Center plaza in Boston’s Back Bay this week.
From the center of Carbonite’s 15th floor space, a visitor can look out over cubicle partitions, through windows on either side of the 25-story building — a view encompassing Fenway Park to Telegraph Hill and the Boston Harbor Islands. In the conference rooms recently vacated by the Christian Science Monitor, which last year ceased print publication, storyboard meeting notes remained on a whiteboard in neat blue cursive.
At Carbonite’s former Boston digs, on Boylston and Arlington streets, space was so tight employees had to time-share desks and work from home. If the company had taken a more traditional route, expanding to Class B office space in Burlington, Carbonite would have paid just as much in rent, Friend said. It’s now paying in the $30-per-square-foot range on a five-year lease. Friend says the setup will enable the company to double in size.
DataXu, an interactive ad analytics startup that launched this year, would have preferred to stay in Cambridge. But by taking over a sublease in a brick-and-beam building across from South Station, they are saving $200,000 over two years — well below what they would have paid in Kendall Square. They’re paying under $20 a square foot for a sublet from Clark Construction Group, CEO Mike Baker said. Complete furnishings came for “a nominal price,” he said.
His MIT-centric co-founders grumbled, but the numbers were hard to dispute, said Baker. “I said, ‘Look guys, it’s three stops on the Red Line.’”
Subleases are often awkward for traditional tenants. But a year or two can be a long time in the life of a startup like DataXu. “For startups, (subleases) are almost ideal,” Baker said. “One thing I know for sure is I won’t be the same size in 18 months.”
Boston-based Fluent Mobile LLC, a 10-person iPhone application development shop, is subleasing from Synergy Workplaces Inc. at 10 Post Office Square. The Synergy business center has seen an uptick in vacancies, with financial tenants closing or pulling back. It has since become more flexible in its pricing, said general manager Laurie Snelson. As a result, they’re seeing those vacancies filled with younger startups, she said.
Their readiness to take on subleases and short-term leases has enabled startups to take advantage of desperate landlords and downsizing tenants with costly space on their hands. That gives startups a huge advantage in the current market — especially in the kind of prestige office space formerly reserved for deep-pocketed law firms and financial clients, said Cushman & Wakefield broker Rebecca Galeota.
“The Class A market is more volatile than even the B market, especially if you incorporate the sublease,” Galeota said. “You can be in a sublease now for rents that rival the lowest of the B market.”
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