Short-Term Deals in Vogue for Tech Firms

Zagster signed a short-term sublease for more than 10,000 square feet at 25 First St. in Cambridge, MA.

BOSTON—A harsh reality in any romance is when someone decides to keep his or her options open and only commits to a short-term relationship. The same seems to be holding true in more and more cases between tenants and commercial landlords in Greater Boston and Cambridge. Ben Sutton, vice president of NAI Hunneman, says that some tenants, particularly fledgling technology, bioscience companies or start-ups, would rather do short-term deals to allow for flexibility in future years to accommodate growth or to contract if necessary. These tenants are trying to be proactive in this tight market and are looking at both direct and sublease opportunities, he adds. A key factor in why these relatively young firms only want to commit short-term is due to the access to capital. He notes that with technology and health care related firms, the success of their product will determine the amount and availability of funding, which will then correlate to how many employees it can hire and how much space it should lease. Due to the intense demand for space in Boston, and particularly Cambridge, landlords are seeking long-term deals of five or seven years or more, Sutton notes. Therefore, when short-term direct or sublease opportunities become available, they usually are taken quickly. Sutton adds that technology firms are particularly at the mercy of landlords who demand long-term deals. However, those long-term transactions go against the best interests of these companies that in their early years of operation are in flux. He notes the technology firms “want to stay flexible, they don’t want to tie up their money long term in real estate when they would rather keep it more for hiring and R&D, which would grow a company or keep it solvent.” A good example of a firm that took advantage of an opportunity is Zagster, which nearly doubled its space in Cambridge. The bike-sharing company signed a sublease for 11,000 square feet of space at 25 First St. in Cambridge. Founded in 2007 and headquartered in Cambridge, Zagster is the largest and fastest-growing bike share provider in the United States. The firm earlier this month relocated from nearby 24 Thorndike St. Sutton and Peter Evens of NAI Hunneman represented Zagster in its relocation deal. Hubspot is the major tenant at the 218,000-square-foot building. Sutton says that the Zagster sublease deal has a term of less than three years. He says that the firm has been growing and recently opened a small office in San Francisco. He notes that Zagster had been on the market for more than a year and jumped at the 25 First St. sublease opportunity because the space can accommodate its short-term growth and the fact that because the property was less than a block away from its former offices it afforded little operational disruption. “It was an easy move where literally they could walk some of their furniture down the street,” Sutton says. He adds that another incentive for Zagster is that 25 First St. is a brick and beam building that many tech firms desire and that the company was able to secure contiguous space on the first floor of the property. Other recent short term deals of late, according to Sutton include: AZ Therapies’ more than 10,000-square-foot sublease deal at 222 Berkeley St. in the Back Bay. The biotechnology drug developer company is relocating its operations from the Prudential Tower building. Data management software and analytics firm Cambridge Semantics’ 5,000-square-foot lease at 141 Tremont St, in Boston was also a short-term deal as was Data Robot’s 31,000-square-foot sublease of PayPal’s space at 1 International Place in Boston. The data science automation firm outgrew its headquarters space near Faneuil Hall and has relocated to the property. He notes that many tech-related companies are offering to make investments in the space and have landlords spend less on build-out if normal lease terms are shortened. Sutton says that he is advising tech firms that they need to act quick because availabilities are limited. He notes that in some cases firms may either need to sublease their existing space or ask for an early termination from their current landlord in order to take advantage of a space availability that will meet their needs for the next few years. Some tech companies, he says, “are constantly in the market” looking for the next deal. While this process can be a bit intense, he admits, it is working for some companies because their funds are not being tied up long term in real estate.