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For office space, Financial District is out — and Seaport is in

Jim Davis/Globe Staff/File

Boston’s Financial District, as seen in 2013.

By Globe Staff 

An office high atop the Financial District used to be one of the undisputed status symbols of Boston’s business world. Now it’s getting a little lonely at the top.

Nearly 20 percent of the office space on the top floors of buildings in the Financial District is vacant, as the city’s blue-chip companies increasingly trade lofty downtown aeries for new but lower-level digs in the trendy Seaport District.

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Data from the Boston office of Colliers International show that vacancy rates for the upper reaches of buildings in the Financial District — floors 20 and above — are at their highest in nearly a decade. And as a whole, the Financial District lost more tenants per square foot in 2016 than any other area in the city, ending up with nearly 850,000 more square feet of vacant space than in 2015.

The Seaport District remains the new “it” address, with companies leasing an additional 400,000 feet of office space in 2016. They include tech companies and old-line businesses, such as the century-old law firm Goodwin, which left its State Street location for 100 Northern Ave.

Other downtown firms trekking across Fort Point Channel for more modern digs include accounting and consulting firms PricewaterhouseCoopers and Boston Consulting Group.

“The Seaport is a truly competitive submarket and has been a draw for tenants from the Financial District,” said Aaron Jodka, director of research at Colliers. “It represents a change in the dynamic within the Financial District itself. Historically, high-rise space is the top-choice space. Firms are [now] paying more attention to their lease costs and have been focusing on the middle of the building or lower portions of the building.”

The Financial District’s occupancy numbers took a hit when State Street Corp. decided to list more than 300,000 square feet for lease at its One Lincoln tower as part of its downsizing, Jodka said. But the lower floors of most Financial District buildings remain well filled, so the overall vacancy rate for the city’s traditional business home was 11.7 percent at year’s end, compared with 10.8 percent for the Seaport. The business district with the highest vacancy rate in 2016 was the Back Bay, at 14.3 percent, according to Colliers.

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Despite a booming real estate market with soaring rents, there is more empty office space in Boston at the end of 2016 than a year ago.

While that raises questions about demand for space in all of the buildings under construction or being proposed, real estate specialists say any softening of the market is temporary.

Office inventory in the Seaport alone has grown by 55 percent over the past five years, and by 78 percent over the past decade, Jodka said. Ongoing projects at 121 Seaport, Pier 4, and 22 Boston Wharf Road are poised to add 825,000 square feet to the area.

But Lisa Strope, director of research at the real estate firm JLL, said she isn’t worried.

“In Boston, the pipeline is not huge for new space; there’s not a lot of land around to build,” she said. “We’re not at point where oversupply is going to be a concern.”

Leasing in Greater Boston picked up momentum only in the last quarter of the year, as uncertainties driven by the Chinese economy, Brexit, and the presidential election kept most people on the sidelines for the better part of 2016, Strope said. She expects that leasing momentum to continue in 2017.

Five large lease deals of over 200,000 square feet closed in Greater Boston in the last three months of the year, including Akamai Technologies Inc. and Shire PLC in Cambridge. Reebok also announced this month that it plans to move its headquarters to the Innovation and Design Building in the Seaport.

Meanwhile, asking rents in Boston, even among high-rise downtown towers, remained high but have flattened out, averaging $56.02 per square foot.

Average rents in Cambridge, a magnet for tech companies, rose by about 7 percent from 2015 to $66.47, according to JLL.

Downtown, and Boston in general, stands to benefit from what Strope called the spillover effect from Cambridge, which has about a 4 percent vacancy rate at the moment.

“Due to Cambridge being so incredibly tight, there’s going to be consistent demand of downtown space, and it has the most transit-accessible spot, and that continues to be the top of the list for many tenants,” she said.

“It’s still a landlord-friendly market. There’s a lot happening in the market that makes me optimistic for the coming year.”


Katheleen Conti can be reached at kconti@globe.com
Follow her on Twitter @GlobeKConti.