With older, pure-play retail space being repurposed into mixed-use developments and e-commerce-resistant users growing their regional footprints, the Boston retail market is evolving in lockstep with that of the United States.
At the same time, new, trendy retailers and restaurant concepts are vying to get their feet in Boston’s door, drawn to the market’s healthy fundamentals and above-average levels of disposable household incomes.
The net result of all this activity is a revitalized retail landscape that is defined by rapid absorption and rent growth within quality existing spaces, the repurposing of older spaces into different uses and the rise of mixed-use developments as backdrops for new supply additions.
According to World Population Review, Boston, a city spanning some 100 square miles, is the fourth-most densely populated metro area in the country. Fueled by a vibrant education scene that includes more than 20 colleges and universities, as well as the addition of 25,000 new jobs in 2019, the population is growing.
These geographic and demographic fundamentals have all but ensured that demand for retail space in Boston is perpetually strong, even during economic downtimes. According Marcus & Millichap, the city proper’s retail vacancy rate currently sits at 3.3 percent, though it is expected to rise by an additional 20 to 30 basis points by year’s end.
Regional Outlook
The simultaneous push to repurpose older retail space and to develop mixed-use projects that house high-quality new space has led to a compression of the total retail inventory. This decline in supply is occurring throughout eastern Massachusetts, as retailers that want to expand in the region but cannot afford rents in Boston’s urban core are increasingly targeting sites outside the Route 128 loop.
According to KeyPoint Partners’ research, total retail inventory for eastern Massachusetts has thus far declined by 0.2 percent in 2019 — a trend that is largely attributable to demolition and repurposing activity. Regional vacancy has moved in line with supply decreases, sinking by 10 basis points to 9.4 percent for 2019.
While big box users in the metro Boston malls and suburban shopping centers are still under attack from e-commerce, we’ve seen some discrepancies among vacancy rates for retailers with varying footprint sizes.
For example, retailers in the 2,500- to 25,000-square-foot range have experienced higher vacancy rates thus far in 2019. This trend is attributable to store closures by national tenants like Payless ShoeSource, Charlotte Russe and Gymboree, as well as by local concepts like Papa Gino’s and D’Angelo’s, two eateries owned by the same parent company that have closed a combined 69 stores in the last 12 months.
Robert Sheehan, KeyPoint Partners
Larger-format users — those requiring between 25,000 and 100,000 square feet — have seen their vacancy rates throughout Eastern Massachusetts decline this year. Occupancy rates for the biggest of the big boxes — those above 200,000 square feet — have held steady.
National retailers like Hobby Lobby and Target have aggressively expanded in the region and backfilled existing product in submarkets like Taunton, Braintree, Attleboro and Burlington.
Redevelopment Plays
Both within and beyond the Route 128 loop, older retail space is being refreshed, rehabilitated and in some cases completely repurposed. As is the case across the country, this repositioning effort is occurring quite visibly among Class B malls in suburban locations. Many of these projects call for smaller retail footprints in lieu of flexible spaces that imbue the property with a sense of being a lifestyle destination.
PREP Property Group recently unveiled plans for the redevelopment of the Hanover Mall, a shopping and dining hub located south of the city that was built in the early 1970s, into an open-air development. Project costs are valued at $250 million. An 80,000-square-foot Market Basket grocery store will anchor the development, which will also include approximately 300 multifamily units.
In a true testament of the metro Boston market’s push for quality over quantity, the retail component of the redeveloped property (dubbed Hanover Crossing) will be about 150,000 square feet smaller than that of the original mall. Preliminary plans instead call for 30,000 square feet of open green space for communal gathering, socializing and event-going.
North of the city, The Village at Burlington Mall, a property owned by Simon Property Group, is getting a bit of a makeover and updated tenant roster with an emphasis on fast casual dining. According to local media sources, Simon is also repurposing the anchor space, formerly occupied by Sears, as part of a broader plan to reduce the total retail footprint by some 20,000 square feet. The first phase of the redevelopment is nearly complete, and Phase II will commence shortly thereafter.
And of course, Boylston Properties’ redevelopment of Arsenal Mall into a mixed-use destination is an epitomizing example of the move toward efficiency in the urban core. The new development, Arsenal Yards, is expected to open by year’s end and to feature 250,000 square feet of retail and restaurant space, 200,000 square feet of office space, a 150-room hotel and 425 multifamily units.
— By Robert Sheehan, vice president of research, KeyPoint Partners. This article first appeared in the October 2019 issue of Northeast Real Estate Business magazine.