By now we’re all aware of the Fed’s short-term interest rate hike and that a gallon of gas is cheaper than a gallon of milk. The nuances of national economic policy are worth exploring, but the truth is that what happens at the national level has historically had little immediate impact on greater Boston’s commercial real estate market. Although statewide unemployment edging down does mean stable demand for office space.
Winter may have just started, but things are hot in greater Boston. The condominiums at Millennium Tower are slated to open this summer while speculative construction is underway downtown (Skanska’s 121 Seaport Boulevard) and in the suburbs (LINX at 490 Arsenal Way, Watertown and King Street’s 115 Hartwell Avenue in Lexington).
Annual rent growth has topped 30% in some submarkets (notably downtown’s aforementioned class B market) and barring an economic calamity, we don’t expect it to slow down any time in the near future. With availabilities in Cambridge near non-existent, we anticipate 2016 will be the year of the inner suburbs – as tenants formerly focused on Cambridge and the Seaport are pushed to explore other nearby options.
In downtown Boston, the year ended with just over 1.0 million square feet (MSF) of positive absorption. While the delivery of Skanska’s building (leased to PwC) at 101 Seaport Boulevard this quarter (440,000 SF) certainly had a positive impact, the majority of space take-up happened in class A Financial District buildings this year.
At 5.1%, office vacancy in Cambridge is approaching historical lows. In both East Cambridge and the Mass Avenue Corridor, vacancy is under 5% (4.5% and 1.2% respectively). As a result of limited availability, leasing activity has begun to migrate away from Cambridge’s core and into the Inner Suburbs and Route 128.
The fundamentals of supply and demand mean that the time is right for speculative construction. While not in Kendall Square proper, less than a mile away is the Northpoint development – where DivcoWest plans to break ground on an 180,000 SF building later this year. It has not yet been determined if the property will be office or lab.
495 West had a strong year in the office sector – particularly Marlborough. Egenera took 65,000 SF at 400 Donald Lynch Boulevard and GE Healthcare and Quest Diagnostics both expanded at 200 Forest Street. While Dell’s acquisition of Hopkinton-based EMC will not officially close until the middle of 2016, the potential impact on the real estate market cannot be overlooked. EMC owns its 1.7 MSF headquarters in Hopkinton – in addition to 1.0 MSF in Franklin. The company leases an additional 288,000 SF in Franklin and 328,000 SF in Bedford.
2015 was the year of suburban construction – over a 1.0 MSF is set to deliver in the next 24 months (over 80% of which has already been leased). We have known for some time that existing suburban product no longer aligns with tenant expectations. As a result, mixed-use projects have finally caught on in New England. With retail, restaurants and convenience amenities now an expected part of the suburban office experience, we are excited to see what the next few years bring.