When Ben Carcio’s idea for a Web start-up won a national competition last year, the prize included free office space at a dream address for techies: Kendall Square. He was surrounded by engineers from Microsoft Corp. and Google Inc., and venture capitalists who fund young tech companies.
But when his year of free space ran out, Carcio found he could not afford Kendall Square’s soaring rents and last month moved his company, Promoboxx, to the South End in Boston.
“We were 100 percent committed to Kendall Square, and we had no choice but to look elsewhere,” said Carcio. “That is what a lot of companies are feeling.”
Increasingly, the startups and young companies that helped make Kendall Square a fulcrum of the region’s innovation economy are either being priced out, or squeezed out of the crowded district. Travis McCready, executive director of the Kendall Square Association, said the square-mile business zone is a victim of its own success.
“We are doing precisely what we wanted to do, which is to create a neighborhood for innovation and entrepreneurship that is so successful that people are dying to get in,” McCready said. But now, “we have no space for them.”
Other Kendall denizens following Promoboxx include software maker Buzzient Inc., whose new digs in Boston’s Innovation District cost half what it would have paid in Cambridge; Brightcove Inc., the digital media company that went public this year; and tech-law firm Finnegan, Henderson, Farabow, Garrett & Dunner, which plans to move across the Charles River this fall.
Through this out-migration Kendall is in effect helping to seed other tech clusters in the region, whether just down the street in East Cambridge, in Somerville, or, most prominently, in Boston.
Mayor Thomas M. Menino has avidly courted starts-ups from across the river to the Innovation District along the South Boston Waterfront.
About 100 companies, many tech or media-related, have moved there in the past two years, and the city recently announced plans to build a $5.5 million innovation center to provide a gathering place for entrepreneurs. Major construction projects will bring about 1,700 new apartments to the Seaport, as well as a new headquarters for Vertex Pharmaceuticals Inc.
While Cambridge’s loss may be Boston’s gain, there is a downside for the start-ups leaving Kendall Square: They miss out on the culture and cachet that makes the place so special in the business world.
“We couldn’t envision not being in Kendall,” said Carcio, whose firm, Promoboxx, conducts Web marketing. “Some of it is the perceived cachet that you get being a Kendall Square company,” Carcio said. “There’s a lot of buzz.”
But staying in Kendall Square comes at a steep price: average rents in Kendall are around $46 per square foot, about 20 percent higher than rents in the Seaport district and almost twice those of even Silicon Valley. And with five percent vacancy rate, available office space in Kendall is harder to find than even in Midtown Manhattan.
Tim Rowe, founder of the Cambridge Innovation Center, said Kendall has such a “gravitational force” that he has a waiting list of two dozen companies that want more space in the building so they can remain close to other start-ups and successful businesses. He said it would be a mistake to underestimate the power of proximity in the business world.
“To be competitive, innovation clusters have to have bulk, because the best people will go to the places that have the most jobs in their industry,” said Rowe, whose center provides flexible work space that start-ups share and is already jammed with around 450 small companies. “It matters a lot to be the biggest. Being second biggest is not nearly as good.”
That is why the principals of Rapid7 Inc., a local maker of security software, are willing to pay Kendall’s going rate.
The company is finalizing a lease for space in Kendall where it plans to open its new innovation center. During a tour of properties recently, Rapid7’s Richard Perkett said the new facility has to make a strong first impression, because when it comes to hiring in the tech sector, location matters.
“We want to create that walk-in-the-door feeling of, ‘I want to work here,’” Perkett said.
While there are long-term plans for new office space,one of the largest buildings in the pipeline for Kendall Square right now is mostly for Biogen Idec Inc., a biotechnology company, and the Broad Institute, a medical research center.
But some think the solution to Kendall’s growing pains is not just more office space, but housing, too.
The architectural and urban planning firm hired by the city of Cambridge to develop a 20-year blueprint for the area is recommending that as much as half of the some 7 million square feet of new construction proposed for Kendall be housing.
Goody Clancy principal David Dixon argued that apartments and condos - and restaurants and stores, too - will make the neighborhood more attractive to the young, sought-after software engineers who are the lifeblood of the growing tech sector.
“Kendall Square succeeded because it was a great place for business, but now it has to be a great place for people,” said Dixon. Younger tech workers, he added, are “in full rebellion of their parent’s suburban lifestyle, and the number one concern for them is walkability.”
Increasingly the start-ups and young companies that helped make Kendall Square a fulcrum of the region’s innovation economy are either being priced out of the crowded district by soaring rents. So young companies are forced to choose between either paying up for less than ideal space, or move and miss out on the culture and cachet that makes Kendall so special in the business world.