Boston’s Financial District: An Empty Quarter
The Financial District is hollowing out, and that’s a big problem—but it may also be an opportunity.
From a distance, the Financial District looks as if it is the very core of Boston’s commercial might. The office towers rising confidently from the edge of the old Shawmut Peninsula are tall, dense, and emblematically urban. They are what the convergence of power and money have always looked like in the modern city.
But behind its solid granite walls Boston’s downtown is resoundingly hollow, with vacancy rates near a 15-year high, at 14 percent, which translates to 5 million square feet of empty office space. Law firms and financial houses have deserted this commercial core in droves for livelier neighborhoods like the Back Bay and the new South Boston waterfront, and the trend shows little sign of reversing. The Financial District, constructed as a temple to money, is now being undone by the very free market it has long celebrated.
Part of the problem is that much of what we know as the Financial District was built in a relatively short period of time under a single mayor, Kevin White, and was based on a now-archaic business model. During his 16-year reign, White exercised vast urban renewal powers to revitalize the waterfront, Quincy Market, and downtown. He approved many of our iconic towers and triggered the development of 75 State Street and International Place by selling off the public parking garages that had occupied those sites. Three banks—Shawmut, First National, and State Street—made White’s vision largely a reality when they built One Federal Street, 100 Federal Street, and 225 Franklin Street, respectively.
With a total of 3.4 million square feet, these three buildings, and many others in the area, are riffs on a single theme: tall towers that offer executives stunning views, built atop squat bases meant to house endless rows of back-office workers. Their architects’ main concern was getting employees into their cubicles at the beginning of the day, and then discharging them back to the suburbs at the end.
In other words, no one back then was worrying about what it was like to walk the city blocks, or whether there were enough first-floor retail spaces to engage the people who worked above. As a result, Financial District towers have huge empty lobbies and no amenities. Without life at the pedestrian level, these behemoths turn a cold, blank face to the neighboring sidewalks, making the prospect of walking among them a miserable experience. That fact goes a long way toward explaining why chicken-salad shops and falafel stands are the only food offerings here—workers just grab a sandwich and then run back inside.
The banks that built the Financial District abandoned it long ago, taking their lower-level office jobs with them to the suburbs, or even overseas. The knowledge industries that have replaced finance as the city’s main economic driver depend on attracting young, mobile, urban-minded workers. And that has put the Financial District at a competitive disadvantage when companies look for office space in Boston.
Forward-thinking companies avoid setting up shop in part-time cities of blank façades and mediocre sandwich shops. These businesses are looking for neighborhood amenities—restaurants, bars, and boutiques—to attract an urbane workforce. That makes the rapidly developing South Boston an ideal landing spot: Life beyond the lobby there includes swanky shopping at Louis and fine dining at scores of new restaurants, plus the promise of a massive new retail and entertainment district to be built as part of the Seaport Square development project. That’s how the 10-year-old Seaport World Trade Center West was able to woo the law firms Foley Hoag (from Post Office Square) and Nutter McClennen & Fish (from International Place). Seaport developer Joe Fallon capitalized on this migration pattern when he lured Fish & Richardson away from 225 Franklin Street to fill his first Fan Pier building. Fallon also recently enticed the energy firm EnerNOC to make the move from an old-line Federal Street building. Similarly, Wellington Management left 75 State Street for the new Atlantic Wharf tower along the Fort Point Channel.
“People are paying a lot more attention to lifestyle than they were 20 years ago. It’s definitely a very big factor,” says Tom Hynes, the co-chairman and CEO of Colliers International in Boston. “You can’t just make a decision based on rent anymore.” The Back Bay has a distinct advantage in this regard: Its office buildings were constructed alongside existing residential districts that support a lively, diverse retail base, and there’s still room to grow. Businesses use the fact that the Back Bay doesn’t go dark at 5 p.m. as a tool for recruiting workers. That, no doubt, is why Ropes & Gray abandoned International Place for the Back Bay, opting for 400,000 square feet in the Prudential Tower.
Builders can continue to expand on the thriving scene in the Back Bay, South Boston, and Downtown Crossing because they have land to work with. In contrast, the Financial District has only one development opportunity left: the dilapidated city-owned garage that Mayor Menino wanted to turn into a 1,000-foot tower before he instead turned his attention to the waterfront. That garage sits on a side street on the edge of the district, so it doesn’t address the main challenge facing the neighborhood. With buildings too valuable to tear down, we’re stuck with a dated landscape that can’t sustain the type of vibrant, 18-hour activity that people who rent office space are seeking.
It’s no surprise, then, that while first-class office rents in the Financial District and the Back Bay once moved in unison, prime Back Bay offices now command a 20 percent premium over comparable Financial District space—fetching an average of $57 per square foot, versus an average of $47 in the Financial District. And all around our hollow center, commercial real estate is thriving. Over the past five years, the Seaport World Trade Center office complex has seen a 21 percent bump in rent, while the John Hancock Tower has risen by 17 percent and the Prudential Tower is up by 11 percent. Downtown, the story is quite different. Rents at International Place are flat; at One Post Office Square and 125 High Street they’re up just 4 percent each; and at the tower at 75 State Street they’re down by 3 percent in the past five years, and by 9 percent last year alone.