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.
Mayor Menino, the urban mechanic, is partly to blame for the demise of the city’s core. He has a serious city-building habit and has long seen the South Boston waterfront as a legacy project, in the same way that White once viewed the redevelopment of the Financial District and Quincy Market. Menino helped transform the waterfront’s parking lots into development opportunities by pairing City Hall’s broad zoning powers with tax breaks and, in at least one case, personal recruitment. And as gimmicky and hackneyed as it first sounded, the mayor’s final decree—that this area be called the Innovation District—has given a much-needed purpose to the waterfront.
To his credit, with his waterfront efforts Menino has jump-started a neighborhood that promises to be dynamic, young, and alive—a place where chemists, software engineers, and architects now mingle with former Financial District denizens. But all this waterfront love has made the Financial District feel even older, darker, and closer to death. Adding insult to injury, the city has done little to soften that contrast. Menino famously lured Vertex Pharmaceuticals from Cambridge to Fan Pier with millions in tax incentives, but it’s unlikely that anyone in City Hall ever tried to get a law firm to move to Franklin Street. There’s been sparse advocacy for the area and no firm turnaround plan. There’s no blueprint for reinventing the neighborhood, as there is in South Boston, or even in Allston. The city talks about the need to build more housing units and to bring more retail downtown but doesn’t have any firm targets for how much of each it wants or needs. Its stance toward development is reactive. “I don’t see this as [a situation] where the city does all the planning,” says Peter Meade, the director of the Boston Redevelopment Authority. “It’s going to be done in partnership with builders and developers.” The mayor, he adds, hopes the district will get some spillover from South Boston, but there’s no full-throated advocacy.
It’s one thing to build a whole new neighborhood yourself, but it’s quite another to be a good steward of something someone else built. “One neighborhood shouldn’t flourish at the expense of the other,” argues Greg Selkoe, the CEO of the streetwear retailer Karmaloop, a former Boston Redevelopment Authority staffer, and a vocal critic of the mayor. “The whole idea should be enlarging the pie.”
A lot will have to change for the Financial District to come back to life. And it turns out that change is coming, in spite of City Hall’s reluctance to act. Street-level retail space is now being added to the old Verizon tower at 185 Franklin Street. A handful of restaurants are opening farther up Franklin, not far from the Filene’s crater. Equity Office has recently completed renovations on the lobbies of its many downtown towers, replacing blank concrete walls with windows and opening up the old buildings to the streets around them. As a result, technology companies are beginning to kick the tires again on downtown office space.
As it happens, a little building at 153 Milk Street may foreshadow the other great shift coming for the Financial District. Up until now, Financial District office-to-residential conversions have largely been confined to the bottom of Broad Street, but there’s a huge swath of buildings that could be filled with residents as businesses leak out of the neighborhood. The seven-story Milk Street building predates the neighborhood’s modern office towers and used to house some unremarkable office space. When it wound up in foreclosure, the building’s new owner gutted it and turned it into luxury loft apartments. It’s the same thing the owners of prewar offices in lower Manhattan did when businesses there fled a decade ago. They made money by giving old, dead-end office buildings new purpose, and created a more dynamic live-work neighborhood along the way.
Just look at Downtown Crossing’s comeback, which has been fueled, in part, by Suffolk University’s efforts to create residences in the area. The school transformed outdated offices off Washington Street into dormitory space. The new life on the street has attracted new restaurants, which, in turn, draw new residents. A Chicago developer, for instance, is now converting the building across the street from these former offices into a boutique hotel. “It’s about animating the city,” says George Thrush, the director of Northeastern University’s School of Architecture. “We have those types of buildings in spades,” says Greg Selkoe. “The Financial District and Downtown Crossing should be, and can be, the most exciting part of the city. It’s the densest part. The buildings are really cool. The grid works really well for mixed use.”
But what to do with the Financial District’s enormous floors that once housed all those office workers? Once favored and then abandoned by banks, these massive spaces turn out to be a great layout for tech firms, which prefer sprawling collaborative workrooms over warrens of little offices. The Financial District’s low-rise white elephants lay out just as the old warehouses in Kendall Square and Fort Point do, something the developer Don Chiofaro recently discovered. He quite literally saw the light in the Financial District when he built International Place in the dark corners of downtown two decades ago, aware that the Big Dig would open up views. He may have lost Ropes & Gray to the Pru, but his long-term investment is finally starting to pay off. He just signed eBay’s PayPal unit to a 65,000-square-foot lease on two of the lower floors.
Chiofaro may be the first to establish a tech beachhead in the Financial District, but there will be plenty of landlords scrambling after him, and the first to open a tech incubator downtown (in the mode of Kendall’s Cambridge Innovation Center) is going to make a killing. Chiofaro’s PayPal deal is a watershed, says Ronald Druker, the president of the Druker Company, which owns about 700,000 square feet in Downtown Crossing and the Financial District. “People are looking at the Financial District who weren’t before,” Druker says. He sees larger companies filling up the fat bases of downtown towers, and smaller firms streaming into the neighborhood’s older mid-rise buildings. Druker owns a loft building on Kingston Street, at the edge of Chinatown, that he has been filling with companies priced out of the Innovation District and Kendall Square.
Cities thrive by reinventing themselves. The ones that can’t change shrivel up and fade away. Boston’s biggest success stories involve repurposing centers of long-dead commerce. Tech is exploding in a section of South Boston that was once devoted to shipping and handling wool. South Boston’s tech cluster is modeled after the one across the river, in Kendall Square, where the MIT community spun off new technologies in abandoned brick-and-beam industrial buildings. The developers behind Downtown Crossing’s current building boom have taken advantage of opportunities created by the failure of the neighborhood as a shopping center. So let’s start thinking about what opportunities the evolution of the Financial District presents.
The elements of a turnaround aren’t foreign to our city. They’re in Kendall Square, where a few new restaurants and bars quickly revived a once-dark business district. They’re in Fort Point, where a glut of cheap loft space fueled a boom in tech businesses. And they’re found around the base of the Prudential Center, where new retail and residential development took a building that stood at arm’s length from the city and tied it back into the street grid.
In the Financial District, the buildings crying out for reconstruction once belonged to banks, not factories or railyards. Why should we care? Cities feed off vibrant downtowns, and cities that matter have downtowns that matter. Downtown rot metastasizes: Whether it’s in Detroit or the blocks around the pit that was once Filene’s, dark, dysfunctional blocks chase pedestrians away, driving businesses out in the process. Blight spreads, while money chases money. That’s why Kevin White poured his energies into raising the Financial District’s office towers, and why the mess on the former Filene’s site on Washington Street generated howls from Charlestown to Mattapan. A city can’t claim to be world class if it’s hollow at the core.
Source URL: http://www.bostonmagazine.com/2012/11/empty-financial-district-boston/