The Financial District Magnet: Tech Companies Increasingly Seeking Refuge in Boston's More Established Core

By Steve Adams, Banker & Trademan | July 28, 2013

As Boston’s Innovation District absorbs a wave of New Economy tenants, many tech companies in the market for office space are looking across the Fort Point Channel to the Financial District as the next best haven.

Traditionally the domain of law firms, consultants and money managers, the Financial District is emerging as a cluster for startups and entrepreneurial companies seeking an urban setting. Landlords are updating buildings to attract tech companies that put a premium on modern, informal workspaces.

"This is where the Millennials want to be, based upon what the companies are telling us," said Glenn Verrette, senior managing director at commercial real estate brokerage Cassidy Turley. "They want to be in a place that has mass transit, and they see a location that can provide great amenities in terms of restaurants and places to go after work."

Tenants increasingly view the Innovation District, Fort Point Channel and Financial District interchangeably when scouting office locations, said Ben Heller, a managing director at Jones Lang LaSalle.

"The infill of residential and destination retail is really making an impact on office space there," Heller said.

The Financial District also offers increasingly competitive costs compared with the nearby Innovation District.

In the 12 months ending June 30, Class A office vacancies in the Innovation District decreased from 19.1 percent to 9.3 percent while direct weighted average rents rose from $48.82 to $52.97 per square foot, according to Cassidy Turley research.

Over the same period, Class A vacancies in the Financial District declined from 15.8 percent to 10.5 percent while asking rents remained essentially unchanged at $47.44 per square foot.

Seeking Value

The Financial District low-rise office space also represents a significant value play compared with longtime tech hub East Cambridge, where average asking rents were $49.39 at the end of the second quarter, with vacancies at 9.5 percent.

Tech companies such as PayPal – which moved from the North End to One International Place – and project manager Technip – which leased 38,000 square feet at One Financial Center – were among the first to make the move downtown in 2012.

This summer, interest is percolating in 745 Atlantic Ave., which will become available in the first quarter of 2014 when data storage provider Iron Mountain relocates to One Federal Street. Jones Lang LaSalle is doing tours an average of twice a week on behalf of tenants looking for space in the 171,795-square-foot building, Heller said.

The building’s landlord, Beacon Capital Partners, is remaking common areas to appeal to companies seeking non-traditional workspaces, Heller said. Roof decks and the lobby are being renovated and modernized.

"It’s an old corporate headquarters that Beacon is converting into a real cutting-edge, innovative sharp redesign," he said.

Mass transit access, nearby restaurants and a LEED-certified building were top considerations for thermal energy provider Veolia Energy when it was looking for a new location to consolidate office space previously located near North Station and at 99 Summer St., spokesman Rowan Sanders said. The company leased 27,550 square feet at 53 State St. and took occupancy in mid-February.

In June, 53 State St. owner UBS Global Asset Management added a new lobby cappuccino bar, part of an industry trend toward providing more informal public spaces.

"Young people are looking for these ‘collision zones’ where people can meet and relax for a few minutes and work on their handhelds or their laptops," Cassidy Turley’s Verrette said. "That’s kind of a transformation."

Another trend benefiting the Financial District is suburban-based corporations opening downtown offices to attract young workers.

Fastener manufacturer Velcro Industries, which maintains its largest U.S. facility in Manchester, N.H., announced in July that it has opened an office at 265 Franklin St. in Boston. Chief Executive Alain Zijlstra, in a statement, said the downtown location and proximity to Logan Airport will help the company innovate and serve global customers.