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CHESTO MEANS BUSINESS

The latest employer planning to shed office space downtown? State government.

The Baker administration is set to pare back leases for downtown office space, and that has Boston business leaders worried.

The Massachusetts Department of Environmental Protection is set to move out of One Winter Street in Downtown Crossing, pictured here, on Dec. 31, 2022.5-Pat Greenhouse/Globe Staff

As many employers pare back their office footprints in downtown Boston, one of the biggest among them is leading the way: the Commonwealth of Massachusetts.

Figures provided by Governor Charlie Baker’s administration show that, as of spring 2021, the state’s executive branch leased nearly 900,000 square feet of space to accommodate its nearly 10,000 downtown Boston office workers. By 2024, it plans to vacate about 355,000 square feet, with another 96,000 still up in the air but likely to go. Those real estate numbers don’t include another 210,000 square feet in the Hurley building, a state-owned property on Cambridge Street that will be closed for several years for redevelopment.

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The administration dubs this rightsizing the “Future of Work” initiative, after a state-funded McKinsey & Co. report that argues hybrid work schedules are here to stay.

Did McKinsey’s researchers predict the future or offer a self-fulfilling prophecy? The answer to that question, at least with regard to the Baker administration, is probably “yes.”

Maybe incoming governor Maura Healey will have different ideas. But the Baker administration sees an opportunity to save tens of millions of dollars in rent costs in the coming years, while also attracting talent in a tight labor market, by providing more work-from-home options.

The initiative, administration officials say, isn’t simply about pinching pennies: Much like their private-sector counterparts, state officials have reimagined how their offices should operate. New workplace reservation systems. More modern AV equipment. Widespread seat-sharing. Roughly half of the entire executive branch workforce went remote during the early days of the COVID-19 pandemic — and it worked out fine. With that in mind, it’s hard to blame the administration for taking the hybrid approach seriously.

But the retrenchment raises a legitimate question about how much of a role state government should play in anchoring an important business district, especially at a time when downtown Boston could use the help. (Administration officials point to their proposal to use $100-million-plus from federal recovery funds to help downtowns across the state rebound from COVID-19, a request that ultimately was not granted by the Legislature.)

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Windows reflect a pedestrian beneath the lights of the Paramount Theater in Downtown Crossing on Oct. 5, 2022.Lane Turner/Globe Staff

Foot traffic numbers tracked by the Downtown Boston Business Improvement District have only partly recovered from pandemic lows. The BID is projecting 32 million daily visits downtown this year, better than the less than 20 million in 2020, but only about half the 60 million counted in 2019.

And what if this is as good as it gets? Recent reports from the city’s big real estate brokerages included many troubling signs. The office vacancy rate in the central business district reached a new pandemic peak of nearly 15 percent in the third quarter, as another one million square feet emptied out between July 1 and October 1, according to Newmark. More office workers are returning, particularly mid-week, but will it be enough to help a neighborhood where about one out of three storefronts sits vacant?

Tamara Small, chief executive of real estate trade group NAIOP Massachusetts, is skeptical. She predicts troubled times ahead, with a flood of office lease expirations anticipated in 2023. Boston, Small said, continues to trail other major US cities, with commuter levels only at about 40 percent of prepandemic numbers. While property valuations have held up, there’s no guarantee they will continue to do so, given the rising vacancies. And with roughly three-quarters of the city budget reliant on property taxes, a sharp downturn in the downtown office market could have drastic consequences for the entire city.

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Boston’s tax base may not be Beacon Hill’s top priority. But count Suffolk Construction chief John Fish among those who believe that government officials should be more proactive in stabilizing office markets.

Fish, in his capacity as chair of the Real Estate Roundtable, co-wrote a letter to the White House on Dec. 12, asking President Biden to tell federal agencies to be more mindful of the community impact of remote work when making real estate decisions. Fish later told the Globe that effects on small businesses and property taxes should be strongly considered when government agencies at all levels evaluate back-to-office policies.

That was the case in the 1970s when the Dukakis administration relocated the state Department of Environmental Protection’s main office to the former Gilchrist’s department store at the corner of Winter and Washington streets in Downtown Crossing. It was part of a broader effort to help struggling urban centers across the state, said developer Ron Druker, who owns the building now known as The Corner that DEP has occupied. The state environmental agency brought life to that vacant, multi-level department store decades ago, along with hundreds of new patrons for nearby restaurants and shops. But not anymore: The agency is set to leave on Dec. 31, along with roughly 400-plus workers who were based there before the pandemic and now will never return.

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Druker said he made the case to various officials in the administration that DEP should stay, in part out of obligation to help downtown. No luck. Yes, he said, the administration should be prudent with taxpayer dollars, its apparent goal in this instance. But he said it also should serve as a catalyst in places where it’s needed.

MassDEP is set to leave its current location on Dec. 31, along with roughly 400-plus workers who were based there before the pandemic and now will never return.2-Pat Greenhouse/Globe Staff

Michael Nichols, the new president of the downtown BID, said the shifts are prompting office owners to get more creative, by dividing floors into smaller spaces to make them more affordable and approachable for startups and nonprofits. But those changes alone won’t be enough to fill the towers, particularly as more leases come up for renewal. That’s one reason Nichols hopes the incoming Healey administration will reevaluate the direction the Baker administration has taken.

For now, the central business district remains out of balance, as business leaders await some kind of equilibrium to take shape.

Many bosses still aren’t sure exactly how many people should be in the office on a given day, and how many square feet they need. As Greater Boston Chamber of Commerce chief Jim Rooney puts it, downtown remains in the middle of a grand experiment. It’s logical, Rooney said, that state government would be a part of this shakeout.

Logical, yes. Fiscally prudent, even. But for downtown Boston at least, the future of work won’t arrive without a certain amount of pain.


Jon Chesto can be reached at jon.chesto@globe.com. Follow him @jonchesto.