WELLESLEY — Off the intersection of Interstate 95 and Route 9, something of a real estate renaissance is underway.
Employees are slowly repopulating Wellesley’s office parks. Public officials recently approved a proposal to build the town’s first lab space. Rents are on the rise, and buildings are changing hands left and right at healthy prices.
In short, a suburban enclave better known for its well-manicured lawns and stately homes has become a hopping office market.
The vibrancy here and in other western suburbs of Boston contrasts with many moribund downtown office markets, where once-thriving towers are sparsely occupied and companies struggle to get employees back to their desks, even with the promise of free muffins and face-to-face interaction.
Meanwhile, suburban office complexes in other parts of the country are still sucking wind. Vacancy rates in the first quarter of 2022 were higher for suburban offices than for the central business districts in Chicago, Charlotte, N.C., Detroit, Philadelphia, Tampa, and Washington, D.C., according to real estate firm Jones Lang LaSalle.
But the Boston area seems to be different, thanks to strong demand from biotech companies and employers under pressure to put offices closer to workers who no longer want to commute into the city.
“If I owned a building, I would be much happier having one in the suburbs than in downtown,” said Greg Reibman, president of the Charles River Regional Chamber, a business group whose members are located in Wellesley and its well-heeled neighbors, including Newton and Needham.
Over half the Greater Boston office submarkets, including Cambridge, have seen a drop in available space over the past year, largely because of the biotech boom. Developers looking to cash in have converted offices into labs at a blistering pace — first closer to Kendall Square, then in more recent hot spots including Waltham and Watertown, and now, in Wellesley. Supply of suburban office space has fallen so dramatically that average asking rents across Greater Boston now sit above $26 per square foot — the highest since the dot-com era, data from real estate firm Colliers show.
“If all the proposed conversions happen, and that’s a big if, it could push suburban occupancy rates to the best they’ve been in 20 years,” said Jeffrey Myers, a research director at Colliers.
“The market is stronger than everyone thinks it is,” said Greatland Realty Partners cofounder Philip Dorman.
The shift can be attributed in part to the early pandemic rush by city dwellers to the suburbs and exurbs. In 2020, more people moved out of Boston — to smaller metros and vacation destinations such as Cape Cod — than arrived in the city, according to Postal Service data.
With just 3 million square feet of office space, compared to Boston’s 67 million, Wellesley is a case study in the nuances behind the local suburban office successes. One of the wealthiest communities in the state, with a median household income of $213,000, Wellesley has an abundance of white-collar employees with Zoom setups that allow them to work from home.
Yet its office market endures.
Amid a labor shortage, companies are eager to accommodate employees with offices nearer to where they live. Professional services firms — like attorneys and accountants — have a foothold in towns that they can’t afford to lose, and landlords are jockeying for position.
Two-thirds of Wellesley office buildings have recently changed hands or are up for sale, said Elizabeth Holmes, the director of corporate services at R.W. Holmes Realty Co. A large chunk of the inventory belongs to Haynes Management, a family-run property owner that operates a number of smaller, older buildings — around 20 of which are now up for grabs. (Multiple calls to Haynes’s office were not returned.)
Several higher-profile sales have come together in Wellesley, too. Beacon Capital Partners bought 93 Worcester St., the former headquarters of Harvard Pilgrim Health Care, for $111.5 million in September and will transform 40,000 square feet into life science space. Park 9, its second property just across the street, may soon follow a similar path. And the Wellesley Office Park — 120,000 square feet on William Street — sold to Lincoln Property Co. for $36.6 million in December.
New ownership has pushed up rents, Holmes added, because of the diminishing availability of office space near Route 128. The Walnut Street offices go for $40 per square foot, up from $30 after the sale, and Beacon Capital Partners listed floors for above $60 before the lab conversion was finalized, compared to mid-$50s last year.
Other buildings have been renovated to woo employees now acclimated to working from home. In 2021, the real estate agency Hunneman transformed a former Roche Bros. office at 70 Hastings St. into a multitenant site with electric-car charging stations and a cafeteria. (Hunneman agents did not respond to requests for comment.)
Adam Meixner, a senior partner at the commercial real estate brokerage 128 CRE, said the uptick in suburban rents could also be a result of rising construction costs from inflation and supply chain disruptions.
Still, the big picture is complex.
A drive down Route 9 reveals swaths of nearly empty office parking lots, even as traffic on Route 128 is nearing 2019 levels and surpassing figures from last year, according to the Massachusetts Department of Transportation. Commuter rail traffic in and out of Wellesley remains well below pre-pandemic levels, so much so that the city sets up drive-in movies in the station parking lot before what used to be the evening rush, said Bob Brown, a resident behind the community news website The Swellesley Report.
And because of the need to adapt to the hybrid future, some companies have downsized their office needs. Sun Life Financial, which employs 3,500 people, has trimmed down its Wellesley office space and announced last August that it will no longer consider the building as its headquarters.
Tom Skelly, vice president of sales and operations at Deland, Gibson Insurance, said the company shrank its Wellesley space twice during COVID, by 40 percent in total, even though its head count increased over the past two years.
“People are coming in at different hours, different days,” Skelly said. “Some young employees are reverse-commuting from the city. We adapted.”
Amy Frigulietti, the town’s assistant executive director, called the state of affairs — in Wellesley and beyond — positive. The suburbs are changing for the better to accommodate a new era of work, and they’re doing so faster than the traditional skyscrapers downtown, she said.
“We’re currently in transition,” Frigulietti added. “The town is in a position to decide what they want for the future.”