Strong growth of technology and financial companies is increasing office rents across the region and fueling proposals for new office buildings from Route 128 to Cambridge and downtown Boston.
In red hot East Cambridge, the area surrounding Kendall Square, average asking rents surged to $63.87 per square foot during the past three months, according to the real estate firm Transwestern RBJ. That was an 18 percent increase compared with the same period last year.
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In Boston, rents for top-rated space ticked up to $51.79. That represents only a slight increase from last year, but several large companies have recently committed to leasing new space in the city, including Natixis Global Asset Management and Sonos Inc., a wireless speaker maker.
“A lot of younger workers want to be in the city, and that’s very clearly driving companies’ decisions,” said Bob Richards, a partner at Transwestern RBJ. “That trend is definitely deepening.”
The recent deal with Natixis is driving plans for a new office tower on Boylston Street. And earlier this week, entrepreneur Steve Belkin unveiled a proposal to build 900,000 square feet of office space in what would be Boston’s third tallest building. The new Financial District tower, which could be as tall as 740 feet, would also include a hotel and possibly condominiums.
“Boston is very strong right now,” Belkin said. “I don’t think the city has enough development projects in the pipeline to accommodate the growth of technology companies, financial services firms, or our biotech companies.”
Belkin wants to build on the site of a crumbling city-owned parking garage. He still must acquire rights to redevelop the property and obtain city and state permits.
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The vacancy rate for office space in Boston is hovering around 10 percent, historically the point at which rents start to increase. Putnam Investments and Bank of New York Mellon Corp. are among large firms shopping for space.
“All it takes is a couple of those deals to happen, and we could see extreme upward pressure on rents,” said Ben Heller, a managing director with the real estate firm JLL.
In Kendall Square, rents have already risen dramatically, driving interest in development opportunities. Several bidders are vying to redevelop a portion of Volpe Center federal transportation complex, one of the neighborhood’s few prime building sites. The vacancy rate in Kendall is hovering around 6.6 percent, according to Transwestern RBJ, leaving large tenants with few options if they want to expand there.
Strong demand for office space is also evident in communities along Route 128, where five buildings are under construction. The area has become a magnet for many growing companies looking to build new headquarters near Boston.
Green Mountain Coffee Roasters recently moved into an expanded complex in Burlington, while Care.com, an online broker of day care and housekeeping services, has signed a lease to move into larger headquarters in Waltham.
Overall, companies along Route 128 filled 717,000 square feet of space during the last three months, the highest quarterly number since 2006. Richards said the increasing competition in the area will continue to fuel construction of new office complexes.
“Larger companies are unable to find existing blocks of space that are big enough for them, and that’s triggering a lot of the build-to-suit construction,” he said. “That’s rarely a first choice for a company, given the expense and time commitment, but we’re seeing a lot more of it.”