IN THE BIGGEST sign yet of persistent trouble in Boston’s commercial real estate market, a 36-story office tower that boasts more than 1 million square feet of prime class A office space is heading for auction.
One Lincoln Street, the former longtime home of State Street Corp., will be put up for auction next month. It’s the first Boston building with class A office space to meet that fate since the pandemic upended the commercial real estate market, according to Jim Rooney, president of the Greater Boston Chamber of Commerce.
It’s “a statement about the condition of the real estate market here in Boston,” Rooney said.
It’s also potentially a statement about the city’s fiscal health. Property tax revenue accounts for three quarters of the city budget, and about 60 percent of that amount comes from commercial property.
The question now is whether One Lincoln’s plight is an exceptional case, or a sign that the distress that has hit lower-priced class B office space could be making its way to the city’s higher-end class A office buildings.
News of the auction was first reported on Friday by Banker & Tradesman. It will take place on March 20,
State Street had occupied more than half of One Lincoln’s 1.1 million square feet of office space before the financial services firm decamped in 2023 for the new 43-story tower at One Congress Street. That left a huge hole to fill at One Lincoln in the middle of the pandemic-fueled contraction in demand for office space. The building landed one big tenant, HarbourVest Partners, a private equity firm that leased 250,000 square feet, but it apparently wasn’t enough to keep things operating in the black.
A spokesperson for the building’s owner, New York-based Fortis Property Group, did not respond to an email seeking comment.
The commercial real estate market in Boston, as in other big cities, has been battered by the shift to remote work. The Boston office vacancy rate stood at 23.2 percent at the end of 2024, a historic high, according to the latest market report from Colliers.
Less expensive class B office space has suffered the most, but even within the class A market, tenants are being drawn to the newest buildings with the most amenities, leaving property like the Lincoln Street tower, which opened in 2003, more vulnerable. The class B vacancy rate stood at 26 percent, while the class A rate was 22 percent, according to Colliers. But with more than three times as much class A space in the city as class B, most of the vacancy is among class A buildings.
The shaky condition of the market has been the obstacle to the ongoing, and so far futile, campaign by Mayor Michelle Wu to win legislative approval to raise commercial tax rates. Wu wants to hike commercial taxes beyond the rate currently allowed in order to cushion residential owners from the tax increase they’re facing.
Her effort has faced strong opposition in the business community, and hit a dead-end on Beacon Hill, where lawmakers say it would be ill-advised to raise taxes on a struggling sector that is contending with depressed values and lower revenue because of the high vacancy rates.
Rooney and other business leaders have instead called on the city to rein in spending.
Tamara Small, CEO of NAIOP Massachusetts, which advocates for commercial property owners, voiced concern that the looming auction may not be the last one to hit prime office towers. “While we all hope that One Lincoln is an outlier, I believe we will see more buildings like this in the next year or two,” she said.
Jeff Myers, the Colliers research director, said conditions in Boston remain troubled. “There’s a lot of lingering distress in the marketplace,” he said. “High vacancies are not limited to a couple of buildings.”
Rooney doesn’t think the One Lincoln auction will necessarily be repeated with other class A buildings. “I think a major tenant loss like that with nothing that could backfill it makes it a somewhat unique circumstance,” he said.
That said, he thinks it will take years for the overall commercial real estate market in the city to stabilize.
With assessed values of existing buildings down and the decades-long development boom that brought new buildings – and their tax revenue – over, he said the city leaders and budget officials have to recognize that we’re in a new reality.
“It’s a very, very difficult financial situation for the city,” he said. “We can’t do business as usual.”
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