NORTHEAST SNAPSHOT, OCTOBER 2007

Western Massachusetts Office Market

The Western Massachusetts office market is experiencing a turnaround from years of decline. As a result, the real estate trends are closely tied to the cities’ funds. There has been a surplus in the area’s finances for the second straight year and crime has been down as well. 

Both federal and state money is pouring in for infrastructure projects, such as the new Federal Court House located at 300 State Street in Springfield. The $53.3 million project is slated for a January 2008 completion. Springfield is also currently in the midst of a multi-million dollar blight reduction program that demolishes vacant or structurally problematic structures. So far, more than 35 properties have been torn down. State Street is in the midst of a 3.2-mile renovation project, scheduled for a fall 2008 completion, and the completion of roadwork as well as the construction of new schools in the area are contributing factors in the city’s economic boost.

There have been a number of significant transactions recently. The sale of the 10-story Harrison Place office building, which serves as the headquarters for the Bank Of Western Massachusetts, was closed in May. With nearly 100 percent occupancy, the opportunity in this perfectly maintained and upgraded property lies in adjusting the rents on existing tenants to market and reflect the rents in the improving downtown district. Recently, the 17-story Sovereign Bank building was bought in two separate transactions. Although the property has been more then 50 percent vacant over the past few years, there is tremendous interest in the space and it should attract a major tenant to the property. These deals are indicative of the value that attracts buyers to the city. Potentially, it is the best market for investment left in the overpriced low-cap environment in the Northeast.

Unfortunately, there has not been any significant new development in the Central Business District recently. However, as stated above, the state and federal programs that are now in place can make for rapid change and investment. There are already residential developers coming in and buying big blocks of housing and renovating the properties for repositioning. In the downtown market, the Mass Mutual convention center was reinvented with a $70 million investment. Like in many rural cities, the project is right in the heart of the downtown corridor. Also, Mass Mutual is doing some major work on their tower to allow for a new bank moving into the central business district. The company is also continually growing and taking more space in their tower, causing a ripple effect on the rest of the market. In the near future, the city will be the first to qualify for state grants for R&D space.

Rents are going up in the central business district although there continue to be vacancies above regional rates outside the city. Class A rents are in the $18 to $24 per square foot range, measuring within 3 percent of last year. Ironically, the submarket has become the city, and the suburban markets have created an opportunity for the downtown market. The suburban submarkets are doing so well, they are commanding higher commercial rents than the central business district. The region’s turnaround is not enough to instill confidence in the Western Massachusetts real estate market. However, with the emergence of serious investors on the scene, the Western Massachusetts office market is poised to become a positive, if not major, player in the Northeast. 

— Glenn Edwards is a managing member for the Chart Organization LLC in Rockville Centre, New York.

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