One of the knocks on Northeast cities like Boston is the high cost of living and doing business. Development agencies for cities in the Southeast and Southwest perennially highlight lower costs, alternative tax regimes, right-to-work status and more “business friendly” environments. Site selection, however, is not always all about savings.
Earlier this year, General Electric elected to relocate its headquarters (and about 800 jobs) to Boston's Seaport District, a move that included state incentives about approximately $145 million. GE attributed its decision to look for a new corporate headquarters to the proposed (and since modified) changes by the Connecticut legislature on how corporations can declare losses. This was a big win for Boston and the Seaport. Boston’s already existing ties to GE are reinforced and The Seaport solidifies its emergence as a top-tier destination and alternative to Cambridge for companies focused on innovation and access to talent. Interestingly, GE is purchasing its site from Procter & Gamble – two industrial conglomerates that have found the way to innovate into the New Economy. GE Chief Executive Jeffrey Immelt highlighted the “eco-system” of world-class universities and tech firms as a reason for choosing Boston over New York City, Atlanta and several other options. Of the 800 jobs expected to be brought to the Seaport as part of the relocations, 600 are expected to be offered to tech-oriented employees.
Data via 2015 Moody’s Cost of Doing Business Index and 2012 Global Talent Index Highlights
There are, however, indications and concerns that high demand is causing the city’s talent pool to become too thin. According to a recent index published by The Massachusetts High Technology Council, Boston is the most difficult US city in which to hire tech workers. While this ranking is a positive indicator of the tech sector’s strength in the area, if left unaddressed it could be a constraint on the region’s ability to expand and remain a leader.
All in all, high wages and cost of doing business will make it challenging for startups to acquire and then retain talent to help their young companies succeed. These enterprises may not be able to offer as much as established firms in terms of salary, but they can compete via with larger amount of equity, engaging work environments, and likely greater decision-making responsibilities within the company. The low housing affordability across the metro area is another drag on the startup economy.
Fast-growing Shire Pharmaceuticals leased two of three buildings formerly owned by Cubist Pharmaceuticals in Lexington which cover about 177,000 SF, giving the company a total of over 1 million square feet in the city. Cambridge-based Biogen is reportedly close to taking 350,000 SF of the 600,000 SF that Boston Properties is hoping to build atop the Cambridge Center North garage at 290 Binney Street. However, the drug maker announced layoffs that totaled about 11% of its workforce in late 2015. At nearby 60 Binney Street, bluebird bio signed a 10-year, 253,000-SF build-to-suit lease at $72.50 per square foot base rent for all of the office space at one of two buildings under construction by Alexandria Real Estate Equities. The gene therapy firm will relocate from its labs at nearby 150 Second Street.
Companies in other sectors and in other Boston submarkets have also been active. Putnam Investments announced that it will shift its Boston headquarters to 100 Federal Street in 2018. The firm has more than 800 employees just a few blocks away at 1 Post Office Square and another 700 in Andover, but expects to eventually have as many 1,000 employees at its new location. As companies such as Putnam lease up space in the Financial District, the supply of quality blocks of larger space remains tight. In addition to creating challenges for some tenants it is helping some landlords sign renewals. Tenants in need of an upgrade to their location and the quality of their space will need to be nimble in this market, particularly given the very limited amount of development currently underway.