Amazon’s announcement last week that it would sign a lease on a building in the Seaport District to accommodate 3,000 new tech workers signaled an enormous vote of confidence in downtown Boston as a business hub, despite the COVID-19 pandemic.
Loomis, Sayles & Co. sent a signal, too, albeit a more nuanced one. The investment firm extended its lease at One Financial Center, the tower near South Station where the company has been since the 1980s, through 2037. But at 232,000 square feet, Loomis will occupy about one-third less space than it does today, giving back three floors.
More than 10 months into a pandemic that has all but emptied downtown towers, the long-term future of offices in Boston remains unclear. Vacancy rates downtown are the highest they’ve been in a decade. There’s more than 3.5 million square feet available for sublease from companies holding long-term leases on space they’ve decided they no longer need. Rents, after climbing steadily for years, are starting to fall.
Now, with vaccines finally starting to roll out and a return to the office slowly beginning to look more feasible, companies across Boston are considering their options for life in a post-pandemic world. Should they bring most employees back? Stay largely remote? Figure out some kind of hybrid model? And what type of office do they really need?
“A lot of companies are wrestling with what are we going to look like when we come back? What’s the best workplace strategy for us going forward?” said Ron Perry, a principal on the office leasing team at real estate firm Avison Young, which represented Loomis Sayles in negotiating its lease extension. “They’ll get there. They’re just not there yet.”
Amazon, whose revenue has skyrocketed through the COVID-19 crisis, is in a unique position. The 630,000-square-foot lease it announced last week is actually the second phase of a two-part expansion at the Seaport Square mixed use development that launched three years ago. By 2024, the company will occupy more than 1 million square feet of prime real estate in Boston.
Of course, it can be difficult to draw a comparison between Amazon and other, less dominant companies, but the e-commerce giant’s investment in Boston has both financial and psychological implications for the city’s economy.
“They took that building in the middle of this pandemic,” said Aaron Jodka, research director at real estate firm Colliers International in Boston. “And this is pure growth. It’s not just moving people around, it’s 3,000 new jobs. That’s huge.”
It’s the kind of news that will hearten major landlords, who for months have endured predictions of a downtown filled with ghostly office towers, at least in the near future.
On a call with analysts last week, executives with Boston Properties — the giant office landlord whose holdings include the Prudential Center and 200 Clarendon (formerly the Hancock Tower) — fairly bristled at the notion that companies plan to abandon their downtown offices.
Doug Linde, the company’s president, ticked off six deals that it’s negotiating with unnamed companies to either expand or extend their leases here.
“Those are just facts,” Linde said. “They aren’t comments by a pundit or a talking head in either The Wall Street Journal or on some evening newscast.”
Still, even he acknowledged that there’s not a lot of new leasing happening.
The Loomis deal was the only downtown office lease deal that exceeded 25,000 square feet over the last three months of 2020, according to real estate firm Newmark. That’s roughly one floor of a large tower. And few other large deals are on the horizon, Jodka said.
Amazon aside, the tech company expansions that launched a tower-building boom in recent years — including Verizon’s 2018 deal to take 450,000 square feet at Boston Properties’ Hub on Causeway project — have slowed to a crawl. Even coworking operators, which two years ago were gobbling up space at a rapid clip, have hit the brakes.
“You don’t have WeWork out there looking for a million square feet anymore,” Jodka said.
That has some office developers considering building lab space instead, betting that life science companies will grow faster than traditional office users and that the requirements of research will means workers are more likely to come to the office.
Oxford Properties, for instance, switched plans for an office building it wanted to build at 125 Lincoln St. in the Leather District to a project focused on lab or tech space.
But Oxford — the real estate arm of a large Canadian pension fund — still owns nearly 3 million square feet of office space in Boston, including the block-long 500 Boylston/222 Berkeley complex in the Back Bay. Chad Remis, who heads Oxford’s operations here, said most of the tenants he talks with may be re-thinking how they use their space, but generally plan to stay.
That’s the case with Loomis.
CEO Kevin Charleston said the company had considered moving to the suburbs — especially when it looked at the high cost of downtown rents before the pandemic — but Loomis likes One Financial’s location and didn’t want to disrupt the long-established commutes.
But the experience of having its employees successfully work from home for the last 10 months made it clear that the company wouldn’t need as much office space going forward. When Loomis’s 600-plus Boston employees return downtown, Charleston said, they probably won’t be coming in every weekday. With that in mind, the company’s paring back by three floors and redesigning what’s left for a hybrid approach.
“I was happy to take advantage of this moment and basically reduce our footprint,” he said. “But if everybody comes back and we find we need more, we can always go back and add space.”