A benefit of my job is seeing the detailed leasing information for about 100 office buildings every year. Nowadays, “Will artificial intelligence impact these tenants?” is the first question I’m asking. Call centers, absolutely. Bookkeeping or payroll operations, yes. Medical administrative uses, probably. Dialysis centers remain resilient from both remote work and artificial intelligence. Central Massachusetts is well positioned to adapt to the AI transition.
Any student of Worcester’s history knows that she’s a city of transitions. From early textile manufacturing to specialized manufacturing led by companies such as Norton and David Clark Co., and now to today’s eds-and-meds era we’re enjoying. AI, at best, will leverage the city’s existing talent, making Worcester more competitive globally. Automation will remove roadblocks to advanced manufacturing coming into expensive labor markets like Massachusetts. The cost of labor drove jobs out of Worcester in the 1960s-1980s. With advanced automation, the role of labor costs in locating factories won’t play the same role it did 50 years ago. Base manufacturing employment will increase the need for everything, from diners to grocery stores to accounting firms.
Worcester has 50,000+ manufacturing jobs, 73,000 healthcare workers, and 50,000+ employed in education. These jobs require in-person work and will be harder to replace with AI. Hybrid and remote work schedules in Boston have contributed to Worcester’s class A housing boom. Alternatively, the relative strength in the office market has been spurred by multiple factors. Nonprofit, healthcare, and government tenants have taken additional space in Worcester, while professional tenants have generally retained space at a high rate.
The Worcester office market is largely locally focused. Only a handful of leases have been signed for more than 10,000 square feet in the Greater Worcester market. Most leases are in the 1,000-8,000 square foot range. These operations are often client/patient facing. Many are small legal, accounting, technology, and medical firms. These firms are slower to adopt new technology, and less likely to replace workers with this tech. Oracle is laying off 18% of its workforce, supposedly because of AI. A 50-person accounting firm with one HR person does not have those types of redundancies. These smaller tenants may, in fact, have more cashflow with which to pay rent. This is because they will find more efficiencies, reduce the costs of already outsourced labor/tools, and continue providing local services to local customers.
The limited supply of modern office space bodes well for the city’s landlords. Older office buildings will continue to come off the market as they are converted to housing or demolished. First class space geared toward small and midsized tenants will thrive. AI will change how we work; fortunately Worcester’s economy is built on a talented workforce who will thrive in the new world.
Harrison Klein is managing director, investments at the Boston office of California-based Marcus & Millichap. He leads The Klein Group, focusing on industrial, office and adaptive reuse opportunities in New England, including deals on numerous Central Massachusetts properties.
