After 3 consecutive years of negative absorption, the Greater Boston industrial market returned to life with 4.2 million square feet of positive absorption in 2011. The overall industrial market saw availability drop from 24 percent to 21.8 percent from year-end 2010 to year-end 2011. Leasing and sales velocity were brisk for the first three quarters of the year, but tapered off in the fourth quarter.

The Greater Boston industrial inventory comprises three markets (Metro North, South and West) that total more than 144 million square feet. Availability in the Metro North market stands at 23 percent today, down from 25.5 percent at the end of 2010, which resulted in more than 1.7 million square feet of absorption in 2011. The Metro South market saw year-over-year availability drop from 20.9 percent to 18.9 percent and vacancy drop from 15.7 percent to 15 percent. Rental rates are still 20 percent below 2007 peaks and it remains a tenant’s market, but Class A space is now in short supply, which points to rent growth in the top end of the market. After 4 consecutive years of negative absorption, the Metro West industrial market posted 1 million square feet of positive absorption in 2011. The prolonged recession contributed 2.4 million square feet of availability to the market between 2008 and 2010 with availability rates exceeding 50 percent in certain West submarkets.

Leasing activity in the Metro North market throughout 2011 was characterized by smaller transactions averaging approximately 50,000 square feet. There were very few leases of 100,000 square feet or more with the exceptions being Millipore’s renewal for 129,600 square feet in Burlington and Nora System’s lease for 99,000 square feet at the former Cisco building in Salem, New Hampshire. The lease deals worthy of note in the West in 2011 include Barrett Warehouse relocating its West market operations from Northborough to Southborough and expanding to take an additional 200,000 square feet, and Quiet Logistics’ lease of 200,000 square feet in Devens. In the South, there were several high-profile transactions in Class A product that were marked by growth of existing users as well as new users coming into the market. These included Lindenmeyr Monroe’s lease of 130,000 square feet in Bellingham; HD Supply’s lease of 152,000 square feet in Readville; Trader Joe’s lease of 133,000 square feet in Middleborough; and Summit Tires’ lease of 135,000 square feet in East Taunton.

Several very significant sales took place in 2011, though sales velocity generally continues to be intermittent. Horizon Beverage purchased the state-of-the-art 400,000-square-foot, former GM building in Norton for $50 per square foot, proving that quality, well-located properties are holding their values. However, “white elephants” still sell at a deep discount to replacement cost as evidenced by the sale of the 500,000-square-foot, former A.J. Wright building in Fall River to Rhode Island Novelties for $19 per square foot.

Given the gyrations in the global financial markets, uncertainties in the domestic economy, and the upcoming U.S. presidential election, it would be hard to predict significant improvement in the real estate markets in 2012. We do expect some rent growth in 2012 and further tightening of supply, but the type of surge in velocity that has characterized economic turnarounds of the last three decades is not predicted.

— Robert Gibson, Executive Vice President/Partner, CBRE – New England



The bifurcated Greater Boston office market needs a reality check — and maybe a psychiatrist — as we move into first quarter 2012. Just determine whether your shrink represents tenants or landlords, because the perspectives will probably differ, with landlords presenting a more optimistic forecast.

On one hand, the glass is half full: Boston’s unemployment rate is lower than that of most metro markets (7 percent versus an 8.6 percent national average); absorption in the last quarter was a positive 195,000 square feet; vacancy is very tight in upper-level, high-rise space; the Route 128 technology corridor is slowly recovering; and more financing is becoming available.

On the other hand, the glass is half empty: corporations continue to downsize and consolidate, the Route 495 market is flat; a tremendous amount of inventory is empty and obsolete; and fueling a mood of corporate uncertainty are macro factors such as the global economic/bank crisis, national debt crisis, stock market volatility, and fears of a double-dip recession.

Overall, there are many indicators of a divergent, uneven market:

• Metro Boston is a tale of two cities (Boston and Cambridge): In the central business district, Class A vacancy is 15 percent, and the average rental rate is $34.50. But right across the Charles River, in East Cambridge, vacancy is averaging 7.9 percent while rents average $50 per square foot. Tied to the above, we are seeing more tenants from East Cambridge migrating to less expensive space in the lower floors of towers in the Financial District. Another example of migration is Vertex Pharmaceuticals moving to Boston’s Seaport.

• Downtown Boston is a tale of two markets: In the Back Bay, vacancy is less than 6 percent, and asking rents are up to $55 per square foot; in the Financial District, vacancy is 15 percent, and average asking rents are $49 per square foot.

• In the top floors of CBD towers, vacancy is as low as 3 percent, and rental rates are up to $60 per square foot; in lower floors, vacancy is 15 percent, and rents average $45 to $50 per square foot.

• The Class B market continues to suffer the effects of tenants’ flight to quality as some companies relocate to higher-image Class A space at still-favorable market terms.

Other trends include the following:

• Most companies are renewing and/or restructuring their leases as opposed to relocating, which is generally more expensive and can be disruptive.

• Small to mid-size deals (below 15,000 square feet) are the most prevalent.

• No new buildings are expected to come online before Liberty Mutual‘s headquarters in 2013.

• Early lease renewal will continue to be a win-win for tenants as well as landlords, who would prefer to maintain credit-worthy tenants.

Looking ahead, it doesn’t take a psychiatrist or psychic to forecast that it will continue to be a tenant’s market throughout 2012, with a full market recovery not expected until jobs reach their pre-recession levels, probably in 3 years.

Boston will remain a popular hub for the healthcare and education sectors as well as technology companies. However, Boston is no longer home to many corporate headquarters, and service industries such as the legal community continue to shrink.

The takeaway? Tenants can still exercise their leverage in securing favorable terms, including free rent and generous tenant improvement allowances. For the next few years, they should be in the driver’s seat.

— Joe Sciolla is managing principal at Cresa in Boston


The 2011 Boston multifamily market continued its improvement in this “post recession” period as average rents increased and vacancies declined in all submarkets compared to 2010 levels. Cap rates continued their compression as a result of investor demand and lower long-term interest rates. The local economy continued its slow improvement with net job gains and lower unemployment reported in the Boston MSA compared to 2010. Investor hopes of opportunistic buying in this segment of the market are diminishing if not already gone, and the Boston multifamily market is approaching pre-recession strength with all near-term signs pointing to further improvements.

The health of any multifamily market is dependent on the economic conditions affecting the market supporting the property. According to Reis, the 2011 economy in both the Boston MSA and the state of Massachusetts as a whole continued its gradual improvement. Both the statewide unemployment rate of 6.4 percent and the Boston MSA rate of 5.7 percent are below the 2010 levels and the current national average rate of 8.6 percent. Job growth through the third quarter of 2011 was just over 50,000 new jobs. This economic stability combined with more households choosing to rent rather than own — either because they cannot qualify under current underwriting standards or are choosing to wait for stability in housing prices — has created additional demand for rental housing.

This increased demand has caused effective rents to increase and vacancies to decrease in Boston and its submarkets. Reis reported that both Class A and Class B/C asking rents are up more than 2 percent from a year ago and vacancy rates have declined to below 5 percent in most of the Boston submarkets. Rent concessions that were prevalent have decreased significantly or have been eliminated in most markets.

Investor demand continued on pace from 2010 levels. Information from Reis and CBRE reported 22 sales in the Boston MSA market totaling approximately $750 million in transaction volume with a average price per unit of $259,000 and an average cap rate of 5.2 percent. Notable sales include the 1,020-unit Jefferson Hills Apartments in Framingham, Massachusetts, which sold in November for $128 million ($125,490 per unit) at a 5.6 percent cap rate. Sub 5 percent cap rates are firmly in the market and investors seem willing to buy into these cap rates as they weigh alternative investments and look at the strong and strengthening Boston multifamily market.

Another support to investor demand is the relatively low level of new supply coming to market. Reis reports that approximately 800 units were added to the market in 2011 and a projected 1,000 units will be added in 2012. Beyond 2012, new supply is expected to rise to about 1,500 units in 2015. This is less than half the rate of new supply in the 2005 to 2009 period.

Further support to the strength of the Boston multifamily market has been the capital markets. There is considerable debt and equity capital available for multifamily owners. The 10-year Treasury — the benchmark for pricing loans for many of these lenders — has fallen from 3.3 percent at year-end 2010 to around 2 percent today. Investor spreads have stabilized for the time being in the market as world economic and political conditions have settled down.

Going into 2012, the Boston multifamily market should continue to be strong based on market fundamentals and continued investor demand. Capital markets should continue to provide low-cost financing to this segment and barring an unforeseen economic or political event the local economy should continue to support the demand side of this market.

— Doug Nickerson, vice president, NorthMarq Capital, LLC


In the Greater Boston area, retail real estate seems to have a hopeful outlook for 2012 and beyond. Market conditions in the general Boston retail real estate realm improved slightly with the overall retail vacancy rate decreasing from 4.8 percent in the second quarter of 2011 to 4.6 percent in the third quarter — down significantly from the 5 percent fourth quarter 2010 (Costar Q3 2011 Boston Retail Market Retail Report).

Boston’s retail net absorption increased dramatically to a positive 1.09 million square feet in third quarter 2011 — up from a positive 822,957 square feet in the previous quarter. Average quoted asking rental rates however were still low at $15.27 per square foot in third quarter 2011.

In addition to improvements in vacancy rates and net absorption, the Boston retail market had several major retail lease signings in 2011, including a 60,000-square-foot Stop & Shop relocation in North Reading, Massachusetts, and a 45,000-square-foot Whole Foods Market signing in Lynnfield, Massachusetts. Also notable was the development of the 600,000-square-foot Northborough Crossing project anchored by Wegmans.

The Boston area retail real estate scene should continue to show signs of recovery and positive motion, as the local economy slowly pushes upward toward higher mobility amidst increases in local consumer confidence, spending and job growth.

Some of the key factors helping to drive this retail recovery while creating retail real estate opportunities include the increase of mixed-use developments and redevelopments, the increase in the development of residential apartment towers and biotech/pharmaceutical laboratory facilities, expansion of deep discount stores, and an increase in restaurant and QSR franchising and overall unit expansion.

Massachusetts continues to be subject to a scarcity of affordable commercial real estate. Combining this with tight commercial lending and funding resources, as well as a lack of big-box anchor retailer expansion, new traditional-style retail shopping center and power-center developments seem to be sort of a thing of the past in the Greater Boston area. However, throughout the past decade, savvy developers and creative municipal planners have brainstormed larger mixed-use developments (often as re-uses of older industrial and office campus properties).

The trend toward mixed-use developments, especially in urban districts and along major highway corridors, is a welcome one, as consumers are presented with innovative, more-desirable shopping and lifestyle experiences, while trade areas and neighborhoods are provided with massive chunks of new retail space that many would have not thought possible to create in coming years.

Some major mixed-use developments in the pipeline — such as Somerville’s Assembly Square/Assembly Row, Lynnfield’s Market Street, South Boston’s Seaport Square and Fan Pier, and Newton’s Chestnut Hill Square — will create more than 2.5 million square feet of new retail, restaurant and entertainment space in the local market. Retail developers including Federal Realty Investment Trust, New England Development, and WS Development have been key forces behind establishing these local commercial epicenters.

Development in other sectors will also create new retail demand in Boston. New skyscrapers and other large building projects include luxury residences, college dormitories and office/lab space for biotech and drug companies. Prominent residential developments breaking ground in Boston in 2011 include Millennium Place III in Downtown Crossing and the Victor on the Rose Kennedy Greenway, each featuring more than 370,000 square feet of their own luxury residences. Emerson College and Suffolk University recently opened 457 new dorms in the heart of the former Combat Zone downtown, adding to the existing 1,100-plus dorms developed by Emerson in recent years.

New England Development and partner Houston Co. announced they would break ground in 2012 on a 357-unit residential tower with underground parking garage and street-level retail space where Anthony’s Pier 4 restaurant now stands in the Seaport District.

In the scientific realm, Vertex Pharmaceuticals, Novartis, MIT and Harvard University’s co-funded Broad Institute, Biogen and other firms have broken ground or announced plans to enter Boston’s Seaport District and Cambridge’s Kendall Square district with massive laboratory and office projects.

What does all of this mean to retail? As droves of new students, urban residents, research professionals and scientists enter these buildings, they will seek retail stores, restaurants, pubs and entertainment facilities — resulting in absorption of nearby vacant space, as well as additional development and redevelopment of adjacent street-level retail.

In the meantime, megastores such as Walmart, Target and Ocean State Job Lot are slowly but surely trying to penetrate the urban landscape in Greater Boston. Walmart has been eyeing sites in the inner-city neighborhoods of Boston, and considering a former Circuit City space in Somerville for its Walmart Market grocery concept. Target has been looking at purchasing the site of the former Filene’s store in Downtown Crossing. Ocean State Job Lot has absorbed several big-box properties in recent years, including the former Stop & Shop building in Medford, Massachusetts.

— Jim Speros is the director of Retail Real Estate at Boston Realty Advisors

©2012 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

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