Could Akamai Technologies become the next company to “pull a Vertex”?
In 2011, biotech giant Vertex Pharmaceuticals Inc. rocked the commercial real estate industry by agreeing to move from the region’s traditional biotech hub in Cambridge to the South Boston waterfront. The move helped accelerate development in the Seaport District, as developers raced to replace windswept parking lots with office towers.
Now, one of Cambridge’s top home-grown tech companies is considering a similar move across the Charles River. Akamai, a global manager of Internet traffic, has been checking out locations in Boston to relocate its headquarters.
Brokers say the exact amount of space that the company wants is still in flux. But the total will likely exceed the 400,000 square feet that the company leases in Cambridge, which would make it one of the biggest office deals of the year. One possibility could involve splitting the workforce between locations: a high-cost place and a less expensive one.
Property owners are already competing for Akamai’s affections. They include Boston Properties, which is developing a massive project next to Boston’s North Station. Boston Properties is Akamai’s current landlord in Kendall Square.
Akamai spokesman Jeff Young said the MIT-born company intends to keep its headquarters within Massachusetts. But he declined to specify whether Akamai will leave Cambridge or to hint at which locations, if any, the company prefers in Boston or elsewhere. He also declined to say when a decision would be made.
“Over the longer term, our goal is to find a location that is both economical as well as one that will provide a vibrant community for our employees,” Young said in an e-mail. “We have a large presence in Kendall Square in Cambridge and have been very happy with the location. As we look forward, we are considering the space options that will best allow the company to support its growth and allow our employees to be the most productive.”
Akamai employs more than 1,650 people in Cambridge, out of a global workforce of about 5,100, and it is likely that the company will want room for more local workers in the future. Young said the company wants to hire at least another 1,000 employees in 2015 across all of its locations.
Whatever space Akamai picks, it probably will be smaller than Vertex’s 1.1 million square feet in twin towers on Fan Pier, and less of a game- changer in Boston. At the time, then-Mayor Thomas M. Menino trumpeted the Vertex win, and his administration endorsed $11.8 million worth of property tax reductions to pave the way for the biotech’s arrival. Cambridge officials, meanwhile, grumbled about having to compete with their larger neighbor for a super-sized employer.
The Vertex move from Cambridge became an issue in Boston’s 2013 mayoral race, with finalists Martin J. Walsh and John Connolly both vowing to take a more regional approach than Menino did to economic development.
John Barros, Mayor Walsh’s top economic aide, declined to be interviewed. But he made sure to emphasize a cooperative approach in a brief prepared statement about Akamai’s search for space: “We are focused on strengthening and fostering our innovation economy, here in Boston and working on a regional scale with our neighboring communities.”
Akamai has grown quickly, adding more than 2,000 workers in the past two years, as it expands beyond its core digital-content delivery business that relies on its globe-spanning network of 170,000-plus servers in more than 100 countries. On any given day, Akamai manages as much as one-quarter of the world’s Web traffic. Now, Akamai is looking to leverage its technology, expertise, and hardware by growing in other lines of business, such as website security and mobile-device performance.
A hole created by an Akamai departure would not be tough to fill, given that Kendall Square is in the hottest office market in Greater Boston. The average annual asking rent for high-end office space in East Cambridge climbed to nearly $67 per square foot at the end of 2014, according to brokerage Transwestern RBJ. That is the highest average of any office market in Eastern Massachusetts and represents a 15 percent increase over the past year.
“If Boston is the beneficiary of them or somebody like them moving over, that [East Cambridge] market doesn’t get hurt by it,” said Ben Heller, head of brokerage Jones Lang LaSalle’s downtown Boston team. “It takes time to fill up that much space. But there’s so much demand and so little opportunity in East Cambridge right now.”
Akamai told investors in its most recent annual report that its Cambridge leases expire in 2019. Companies of Akamai’s size often start these types of property searches at least two years in advance. There is no guarantee that Akamai will leave Kendall Square, although finding significantly more room to expand there could be tough if it decides to stay. The company, at the very least, wants to test the waters elsewhere.
“They certainly are going to be looking at a lot of locations, if anything, to give them a better negotiating position,” said David Begelfer, chief executive of commercial real estate industry group NAIOP Massachusetts. “The more options they have, the better they can negotiate with their current lessor. If they only have one option, they don’t have an ability to negotiate.”