Priced out of the Innovation District
Boston’s Innovation District has been such a success that it’s in danger of pricing itself out of existence. And as district landlords race to cash in on the city’s epic marketing campaign, there’s no one place for the companies being priced out of the Innovation District to cluster around. The next Innovation District, be it in Downtown Crossing or Allston or Dorchester, will likely be up against the same economic forces that now threaten to hollow out the four-year-old South Boston Innovation District. There’s tremendous interest in Boston City Hall in fostering start-up activity, and no plan for putting money behind this interest.
The small start-ups that fuel the region’s innovation economy could never claim the new office towers rising above acres of parking lots in South Boston. Lawyers and corporate accountants are the only ones who can stomach the enormous rents.
The heavy lifting in the Innovation District has always happened inside in the old brick warehouses along the Fort Point Channel. Architects and tech firms flocked to Fort Point because the neighborhood offered a good deal on office space. Now rents are shooting up — they’ve jumped 40 percent in the past two years alone — and the types of companies that defined the Innovation District are finding themselves priced out.
MassChallenge, the start-up accelerator that draws scores of entrepreneurs to the waterfront, is in a similar position. MassChallenge had been the one firm driving start-up-level innovation in a newly-built waterfront building, but the organization will be vacating its offices by next summer. Developer Joe Fallon is looking to rent the office space that he has been giving to MassChallenge rent-free, and the accelerator cannot afford to pay market rates to occupy its Fan Pier offices. The Globe’s Scott Kirsner reported last week that MassChallenge will either be moving deep into the Marine Industrial Park or leaving the waterfront entirely.
Last week, mayoral hopeful Bill Walczak tried to seize on the difficulties firms are having buying into the Innovation District. Walczak has been making hay with his opposition to a casino at Suffolk Downs, so he proposed constructing a new Innovation District, not a gambling hall, at the foundering racetrack. The idea isn’t a great one. The track doesn’t have the glut of cheap office space that small companies need to plug into. But there was a kernel of truth in Walczak’s proposal. The problem isn’t that well-heeled companies are moving into the South Boston waterfront; it’s that there’s no obvious plan for what happens next.
Small innovation companies need to cluster around one another, they need cheap places to work from, and since land around Boston isn’t free, cheap real estate needs real money behind it. Incubators like the Cambridge Innovation Center and Dogpatch Labs in Kendall Square; the free start-up space PayPal provides at its offices in Boston’s Financial District; and the free space MassChallenge has enjoyed at Fan Pier all help shift real estate costs, but someone still has to pay.
The Innovation District is in danger of becoming a top-heavy boutique neighborhood because it targets price-sensitive businesses, but has no way of providing stable rents. There’s no consensus about who should pay to keep office rents affordable at the very low end — developers, large companies, area institutions, or the city itself could all conceivably handle the job — and, even if consensus did exist, there’s no means of enforcing it.
By all rights, Boston’s next innovation cluster should be coming together in Allston. The neighborhood boasts young, creative residents, proximity to Kendall’s innovation cluster, and a wealthy, research-intensive institution in Harvard. It has creative incubator space, the Startup Lab Allston, which sits around the corner from Harvard University’s Innovation Lab, the university’s massive new science research center, and building pads for a private research campus the school hopes will become Allston’s answer to Kendall Square.
What Allston doesn’t have is what Kendall now does — a way of using educational institutions to finance start-ups’ real estate. Permits for MIT’s ambitious 1-million-square-foot expansion around Kendall came tied to commitments from the school to provide 100,000 square feet of affordable innovation office space. Cambridge required that MIT’s commercial development subsidize innovators in the same way that large housing developers subsidize affordable housing with the revenues from new market-rate units. The city institutionalized the start-up economy. Until Boston can figure out a way to follow suit, the city will be stuck in endless loop of creating new innovation clusters, and watching as the market devours them.
Paul McMorrow is an associate editor at Commonwealth Magazine. His column appears regularly in the Globe.