Northeast Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Northeast United States.
Issue link: https://northeastrealestatebusiness.epubxp.com/i/632700
20 • January/February 2016 • Northeast Real Estate Business www.REBusinessOnline.com M A R K E T H I G H L I G H T: B O S T O N Strong job growth and household formation coupled with low retail va- cancy and high retail demand are the factors supporting Boston's red-hot retail property market. Last year, em- ployers created approximately 56,000 jobs — with the majority of new posi- tions in the professional and business services sectors — representing a 2.2 percent metrowide payroll expansion. Employment gains aided the cre- ation of 23,000 households in Boston in 2015, which prompted increased residential development. Develop- ers, seeking to accommodate rising demand for rental housing, concen- trated construction in the Boston core and generated higher retail spending in nearby centers. As a result, tenant demand for retail buildings in Boston has sharply intensifed. In 2015, approximately 1.7 million square feet of retail space came online, which represents a 0.8 percent increase to local inventory. Development activ- ity was particularly pronounced in the North Shore and Boston core, where approximately 650,000 square feet of retail buildings were delivered in the four quarters ending in the third quarter of 2015. An additional 2 mil- lion square feet of retail development is currently underway, and another 3 million square feet of retail develop- ment has been proposed. Nearly 3 million square feet of proposed devel- opment is scheduled to come online in 2018. One such development project is Seaport Square, a mixed-use project that will comprise three residential towers spanning 1.1 million square feet. Each tower will provide approxi- mately 100,000 square feet of retail space to complement a live-work-play environment. Yet, even with the breakneck pace of retail development in 2015, deliv- eries have not been able to satisfy de- mand for new retail buildings; strong pre-leasing conditions have mitigated upticks to vacancy as new retail build- ings are completed. The metro saw a 40-basis-point decline in vacancy to 3.3 percent last year, as retailers ab- sorbed a net 2.4 million square feet. It is worth noting that in the North Shore submarket, vacancy fell 60 basis points to 3.2 percent. While vacancy trended down last year, rents trended up in the Boston metro. In 2015, asking rents in Boston climbed 2.2 percent to $18.55 per square foot as deliveries were insuf- fcient to meet demand. This contrasts sharply with 2014 when asking rents decreased 2.7 percent. In Chelsea/Re- vere, asking rents soared up 7 percent year-over-year. Rents for shopping centers grew by 5.7 percent metro- wide to $17.74 per square foot over the 12-month period ending Septem- ber 2015. As rents increased last year, so too did investor activity. The upward trends in employment, household formation, and insatiable tenant demand for retail space kept investors confdent in the strength of Boston's economy, creating a competi- tive bidding environment for available retail buildings. With limited listings on the market, buyers were willing to pay higher prices in 2015 than in the previous year. As of the third quarter 2015, retail listings in the Boston core submarket were trading hands at cap rates in the 5 percent area or 200 basis points below the metrowide average. Prices for single-tenant buildings jumped 15 percent over the past four quarters ending in midyear 2015 at $372 per square foot on average, rep- resenting one of the highest price increases for retail property among Eastern U.S. metros. In the coming year, as buyers continue to seek in- vestment opportunities in Boston's single-tenant retail market, accelerat- ed competition will push prices even higher. The core and areas surround- ing new residential development, including South Boston, will remain popular targets. Multi-tenant build- ings saw price increases as well, rising to $308 per square foot on average, doubling the national average. In the months ahead, as operations continue to improve, buyers should be less hes- itant to consider neighborhood, com- munity and strip centers over other investments venues. With the same factors that led the retail property boom in play, 2016 may well be another red-hot year for retail in the City on a Hill. Robert Horvath Vice President Investments, Marcus & Millichap BOSTON RETAIL DEVELOPMENT TRIES TO KEEP UP WITH DEMAND Visit the NEW northmarq.com for daily rates, expert views, recent transactions and much more! B O S T O N L O N G I S L A N D N E W J E R S E Y N E W Y O R K P H I L A D E L P H I A U P S T A T E N Y W E S T C H E S T E R N Y As the nation's largest privately-owned servicer and provider of commercial real estate debt and equity, NorthMarq Capital has the strength and stability to execute transactions with certainty and deliver results that suit even the most unique needs. o n ' s l a r g e s t p r i v a t e l y - o w n e d s e r v i c e r a n d p r o v i d e r o f r e a l e s t a t e d e b t a n d e q u i t y , N o r t h M a r q C a p i t a l h a s t h e d t b i l i t t t t t i i t h t i t d Your real estate fnancing should be built on "when"... not "if." Boston Retail: Asking Rent Trends Boston Retail: Single-Tenant Sales Trends