Another major investment firm is betting on the future of the Financial District, with Eaton Vance on the brink of signing a major lease to relocate to One Post Office Square, a few blocks from its current home in International Place.
Dan Cataldo, the company’s chief administrative officer, said the exact size of the space is still being worked out, with a goal of completing a deal in early 2022 and moving in early 2024. He said it’s likely the new headquarters will be between 250,000 and 275,000 square feet, a bit less than the roughly 325,000 square feet Eaton Vance leases in Two International Place off High Street now.
The Eaton Vance deal has been the talk of Boston’s commercial real estate industry for weeks, as brokers try to divine the future of downtown’s core office district at a time when only a fraction of the people who normally work there are coming to the office on any given day. It follows similar high-profile deals by fund managers Wellington and Loomis Sayles to stay in their current towers (although Loomis is significantly paring back the size of its home at One Financial Center).
Eaton Vance is moving into a 40-year-old skyscraper that is undergoing a $300 million face lift, replacing its concrete façade with sleek glass, adding outdoor terraces, and other modern touches. The tower also happens to be owned by a real estate fund advised by investment bank Morgan Stanley, Eaton Vance’s new parent company. Cataldo said One Post Office Square was on Eaton Vance’s short list before Morgan Stanley announced last fall that it would acquire the firm for about $7 billion, and the final selection was based “on the merits of the property.” Among those merits: a private roof deck, new floor-to-ceiling windows, a more open floor-plate.
And Eaton Vance will be able to customize its space — in contrast with its current headquarters, which was inherited from a previous tenant — with fewer, and smaller, executive offices. That means a bit less square footage overall.
Early in its search process, Eaton Vance considered moving out of Boston, and also out of state, Cataldo said. But the century-old fund firm decided it was critical to stay in the Financial District, the epicenter of the region’s mutual fund industry, even if it would have saved money on rent somewhere else. The potential disruption for the roughly 1,200 Boston employees wasn’t worth the risk.
“We would have experienced pretty expensive turnover if we were to make a major move. [And] we need to attract talent,” Cataldo said. “We felt being down in the Financial District was important to doing that. That’s where our employees want to be.”
Cataldo said he doesn’t expect all employees will come in five days a week once the pandemic is over. They’ve been coming in on a part-time basis since the start of the summer. He said the office currently can be 30 to 40 percent occupied on the busiest days — usually Tuesdays, Wednesdays, and Thursdays — and expects those numbers to further increase in the coming months.
“It’s critical for our employees to come into the office some number of days a week,” Cataldo said. “People seem to be comfortable with the idea of coming back. But people also like the idea of working from home. It feels like we’re going in the right direction.”
Brendan Carroll, research director in brokerage Cushman & Wakefield’s Boston office, agreed with Cataldo about the momentum. He called the Eaton Vance lease “tremendous further validation” of the downtown office market, after significant pessimism last year about the future demand. He said the shrinking office footprint reflects a 20-year trend for legacy employers such as Eaton Vance.
“It’s important to note that Boston has not been a five-day-a-week city for a long time, for a lot of workers,” Carroll said. “The real question is whether or not we’re going to come back to something similar to the way it was in 2019. That’s becoming increasingly likely or possible.”
A recent report from Perry CRE, a local brokerage, indicates that the office market bottomed out in the past few months. But there are still many empty spots to be filled. About 22.5 percent of the 31 million square feet of office space in the Financial District was available for rent as of the end of September, according to Perry’s research, with about one-quarter of that space available through sublease. The amount of sublease space on the market remains about twice of what it was before the COVID-19 pandemic. And there’s more than 3 million square feet of new office construction — or gut renovations like One Post Office Square — launched before the pandemic that’s now coming on the market.
“What’s happening is these large tenants are going out of existing buildings and into new construction and opening up holes in the existing product,” said Ashley Lane, a senior vice president at Perry. “Who is going to backfill that space?”