In Wellesley and suburbs, the office market is booming
The vibrancy here and in other western Boston suburbs contrasts with many moribund downtown office markets, where once-thriving towers are sparsely occupied and businesses struggle to get employees back to their desks, even with the promise of free muffins and face to face interaction.
Meanwhile, suburban office complexes in other parts of the country continue to suck in the wind. According to real estate firm Jones Lang LaSalle, vacancy rates in the first quarter of 2022 were higher for suburban offices than for the central business districts of Chicago, Charlotte, North Carolina, Detroit, Philadelphia, Tampa and Washington, D.C. .
But the Boston area appears to be different, thanks to strong demand from biotech companies and employers under pressure to bring offices closer to workers who no longer want to commute to town.
“If I owned a building, I would be much happier to have one in the suburbs than downtown,” said Greg Reibman, president of the Charles River Regional Chamber, a business group whose members are located to Wellesley and its well-heeled neighbors including Newton and Needham.
More than half of Greater Boston’s office submarkets, including Cambridge, have seen a decline in available space over the past year, largely due to the biotech boom. Developers looking to cash in have been converting offices into labs at a breakneck pace – first closer to Kendall Square, then in newer hotspots including Waltham and Watertown, and now, in Wellesley. The supply of suburban office space has fallen so dramatically that average asking rents in Greater Boston are now above $26 per square foot – the highest since the dot-com era, according to data from real estate company Colliers show.
“If all of the proposed conversions happen, and that’s a big if, it could push suburban occupancy rates to their best in 20 years,” said Jeffrey Myers, research director at Colliers.
“The market is stronger than anyone thinks,” said Philip Dorman, co-founder of Greatland Realty Partners.
This shift can be attributed in part to the early pandemic rush of city dwellers to the suburbs and suburbs. In 2020, more people left Boston — to smaller metros and vacation destinations such as Cape Cod — than arrived in the city, according to Postal Service data.
With just 3 million square feet of office space, compared to Boston’s 67 million, Wellesley is a case study in the nuances behind local success of suburban offices. One of the wealthiest communities in the state, with a median household income of $213,000Wellesley has an abundance of white-collar workers with Zoom setups that allow them to work from home.
However, its office market continues.
Amid a labor shortage, companies are keen to accommodate employees in offices closer to where they live. Professional services firms — like lawyers and accountants — have a foothold in cities they can’t afford to lose, and owners are vying for the job.
Two-thirds of Wellesley’s office properties have recently changed hands or are for sale, said Elizabeth Holmes, director of business services at RW Holmes Realty Co. Much of the inventory is owned by Haynes Management, a family owner which operates a number of smaller and older buildings, around 20 of which are now up for grabs. (Several calls to Haynes’ office were not returned.)
Several high profile sales have also gathered at Wellesley. Beacon Capital Partners bought 93 Worcester St., the former headquarters of Harvard Pilgrim Health Care, for $111.5 million in September and will transform 40,000 square feet in the life sciences space. Park 9, his second property across the street, may soon follow a similar path. And the Wellesley Office Park – 120,000 square feet on Walnut Street – sold to Lincoln Property Co. for $36.6 million in December.
The new property has driven up rents, Holmes added, due to dwindling availability of office space near Route 128. Walnut Street offices cost $40 a square foot, up from $30 after the sale, and Beacon Capital Partners listed floors for over $60 before. the lab conversion was finalized, up from about $50 last year.
Other buildings have been renovated to appeal to employees now accustomed to working from home. In 2021, the real estate agency Hunneman transformed a former Roche Bros. supermarket. at 70 Hastings Street. into a multi-tenant office site with charging stations for electric cars and a cafeteria. (Hunneman’s agents did not respond to requests for comment.)
Adam Meixner, senior partner at commercial real estate brokerage 128 CRE, said rising suburban rents could also be the result of rising construction costs due to inflation and supply chain disruptions. .
Yet the big picture is complex.
A drive down Route 9 reveals stretches of nearly empty office parking lots, even as traffic on Route 128 nears 2019 levels and tops last year’s numbers, according to the Massachusetts Department of Transportation. Commuter rail traffic to and from Wellesley remains well below pre-pandemic levels, so much so that the town is hosting drive-in movies in the station car park ahead of what was once the evening rush, a said Bob Brown, a resident behind the community news site The Swellesley report.
And due to the need to adapt to the hybrid future, some companies have reduced their office requirements. Sun Life Financial, which employs 3,500 people, has reduced its office space in Wellesley and announced last August that it would no longer consider the building as its headquarters.
Tom Skelly, vice president of sales and operations at Deland, Gibson Insurance, said the company has reduced its Wellesley space twice during COVID, by a total of 40%, even though its workforce has increased over the past two years.
“People arrive at different times, different days,” Skelly said. “Some young employees commute from the city. We have adapted.
Amy Frigulietti, the town’s deputy chief executive, described the situation – in Wellesley and beyond – as positive. Suburbs are changing for the better to adapt to a new era of work, and they’re doing it faster than traditional downtown high-rises, she said.
“We are currently in transition,” added Frigulietti. “The city is in a position to decide what it wants for the future.”