Simply put, Boston is — and will continue to be — a top destination for tenants and capital alike. With strong market fundamentals and key drivers (education, finance, healthcare, life sciences and technology), 2018 is likely to be another terrific year for the commercial real estate sector. Market Metrics Boston’s urban core comprises four major submarkets: Downtown, Back Bay, Seaport and Cambridge. Together, these submarkets total more than 96.1 million square feet of office and lab space. This sector of the market features a vacancy rate of approximately 8.8 percent, positive net absorption of more than 300,000 square feet in 2017, and rental rates that are on the rise. Boston’s urban office market is largely driven by the region’s high concentration of educational institutions, financial and professional services, healthcare, life sciences and, perhaps most important, technology. These industries excel in the Boston area due to its high concentration of knowledge workers and its spirit of innovation and entrepreneurship. Tenant In-Migration The biggest trend impacting Boston recently has been the large-scale relocations of tenants into the urban core — both from within and outside of the market. This is a trend that shows little signs of slowing down. • GE — …
From new mixed-use developments popping up in the skyline to the increase of small-format stores, 2017 saw robust growth in downtown Boston’s retail landscape. Specifically, stabilizing rental rates have led to an uptick in retail leasing activity, showing the strength of both traditional retail destinations such as Newbury Street, as well as new mixed-use developments like One Seaport Square. While the downtown retail market is poised to remain stable, 2018 will welcome new trends fueled by e-commerce and omnichannel retailers, new leasing models, shifting consumer shopping behaviors and the ongoing challenge to accommodate millennials’ evolving preferences and expectations. The Seaport’s Emergence as a Retail Destination Historically, Back Bay has served as Boston’s premier neighborhood for retail with Newbury Street as its crown jewel and nearby Prudential Center, Copley Place and Boylston, all within a few minutes’ walking radius from the famous street. While Back Bay will continue to be a hotspot in 2018, Boston’s Seaport neighborhood is breaking out as a retail destination to watch as it transitions into one of Boston’s premier work-live-play destinations. Most recently, retailers Bluemercury, Mr. Sid, TravisMathew, Filson, L.L. Bean, and Lululemon are finding the value in meeting Boston’s young professionals where they work, live and …
In Delaware’s largest city, Wilmington, it is a tenant’s market when it comes to office leasing. There is much activity and redevelopment to attract new tenants downtown. Rental rates hover around $18 to $21 per square foot for Class B office space and $23-plus for Class A office space. Vacancy for Wilmington and its suburbs combined has decreased to around 13 percent. In the past year, nearly vacant office buildings have garnered activity from new investors looking to purchase at lower price points, freeing up excess capital for renovations or redevelopment. Some office buildings are being redeveloped into residential apartments due to the demand of millennials and professionals who desire a “live-work-play” lifestyle in downtown Wilmington, and who wish to reside near the city’s Amtrak station to take advantage of the easy access to larger cities like Philadelphia, New York, and Baltimore. The Buccini/Pollin Group has been putting hundreds of millions into the construction or redevelopment of residential, office, and hotel, as well as sports and entertainment properties on Market Street and in the Riverfront area. The company recently acquired a 13-story building comprising the former DuPont headquarters and the Hotel DuPont, which will be converted into a mixed-use complex …
Philadelphia’s office and industrial markets have been on a hot streak for the past year, with lower vacancy rates and greater rent growth than the national average. Office vacancies are enjoying far lower vacancy rates than regional and national averages for both Class A and Class B properties in the central business district and the suburbs. Flex and industrial vacancy rates are below 7 percent overall, well below regional and national averages, with average asking rents at about $5 per square foot. We see this upswing continuing in 2018 as demand keeps pace with or exceeds new development. Philadelphia has experienced seven years of uninterrupted job growth across all sectors, with 1.8 percent growth between August 2016 and August 2017 — outpacing the national average of about 1.5 percent, according to the U.S. Bureau of Labor Statistics. We saw job growth across the board, including the education, health, and leisure and hospitality sectors. But the biggest gain was in business and professional services, where Philadelphia added 16,700 jobs over 12 months. That represents a 3.6 percent year-over-year growth rate in high-end office jobs, compared to a national average of 3 percent. Manufacturing employment declined over the past 12 months, despite …
Suburban Philadelphia Update The suburban Philadelphia apartment market had a very successful 2017, with no slow down anticipated for 2018. Fundamentals remain strong with low interest rates and increased demand from outside buyers, which is compressing cap rates even further than historical lows. Some highlighted sales include Willowyck Apartments in Montgomery County, which sold at a sub-5 percent cap rate on trailing 12-month numbers, and Declan House in Ardmore, which recently sold at a pro forma cap rate of 5 percent. These are two of numerous transactions that have sold at historically low cap rates over the last 12 months in suburban Philadelphia. We are also seeing more newly constructed Class A, highly amenitized properties in suburban Philadelphia that are targeting rents at north of $2.75 per square foot. Some successes have included the Maybrook, a 250-unit newly constructed property in Narberth/Wynnewood, Pennsylvania. The complex opened for leasing in late 2017 and they have been achieving rents in the $2.75- to $3-per-square-foot range. Another new construction success story is the influx of more than 800 apartments located in close proximity to Towne Center in King of Prussia. The properties include Indigo 301 and Hanover Valley Forge, among others. Both properties …
In Southern Maine, we have an inventory problem. An inventory shortage, that is. During the recovery, there has been a steady flight to quality in all sectors including office, retail and, most strikingly, the industrial market. For the seventh consecutive year, the Greater Portland industrial market vacancy rate has dropped. We are now hovering close to a 2 percent total vacancy, which is grossly inhibiting end-users and growth. Throughout 2017, we worked with buyers and tenants that struggle to find suitable relocation and growth opportunities. Multiple offers and off-market sales have become commonplace, which frustrates end-users. We are coaching our clients to remain patient, flexible and communicative in this fluid and competitive market. Accordingly, the limited inventory drastically increased both lease rates and sales pricing for industrial style space. Sale price trends, in particular, deserve a closer look. In 2011, at the tail end of the recession, Class A and B industrial buildings were selling in the $40-per-square-foot range. Sales were almost exclusively going to owner-user businesses who were bullish enough to bet the economy would turn. Today, those businesses are competing with a smaller inventory pool, and against investors looking to diversify their portfolios. Quality industrial buildings are now …
As 2018 begins, it appears that the Greater Portland office market has continued to hold on to low vacancy rates as supply remains low across both Class A and Class B buildings throughout the market. CBRE/The Boulos Co is conducting its annual market outlook; it will be exciting to see the results, which we release in January. I anticipate the numbers to show a steady or slight decrease in vacancy rates across all submarkets but also show a much lower absorption rate, as momentum has appeared to slow down over the last 18 months. Transaction volume is trending far lower than in previous years and could possibly be the lowest number of transactions in the last seven years. However, there were a number a relatively large transactions completed over the last six months that will have a larger impact on the overall vacancy rate than simple transact ion volume. And we must consider that the small number of leases signed could also be due in part to limited supply. The Downtown Portland Class A office market, in particular, continues to operate at historically low vacancy rates. Over the last five years, there has been a steady decline in Class A …
Retail inventory in Southern New Hampshire totaled 29.8 million square feet in 2017, a modest decline of 59,400 square feet, or 0.2 percent, largely due to retail demolitions and conversions to non-retail space, including auto dealerships, office, and residential. Some former retailer spaces that have been demolished include the 17,800-square-foot Grenon Trading Co. in Bedford, the 10,700-square-foot New Hampshire Liquor & Wine Outlet in Salem, and the 8,400-square-foot Weathervane Restaurant in Salem. The big story in the market is the notable decline in vacancy. Several retailers absorbed large vacancies, reducing unoccupied space by more than 400,000 square feet, and cutting the vacancy rate from 10.5 percent in 2016 to the current level of 9.1 percent. Larger retailers who filled vacant space include Chunky’s Cinema in Manchester, which opened in a portion of the former Lowe’s store; Hobby Lobby in Nashua, filling a vacant Market Basket at Somerset Plaza; and Ocean State Job Lot in Seabrook, which opened in the former Walmart at Southgate Shopping Center. As a result of relatively stable inventory and considerable decline in vacancy, the region finished the year with positive net absorption of 352,400 square feet. There’s been no change in the top 10 largest regional …
With a statewide unemployment rate of 2.7 percent, New Hampshire has one of the lowest unemployment rates in the nation, and is well below the national unemployment rate of 4.4 percent. The New Hampshire labor market has continued to tighten, with unemployment having dropped 0.2 percentage points since third quarter of last year. Employment gains have not been seen in two traditionally industrial sectors: trade, transportation & utilities or manufacturing. Employment in these sectors has remained relatively flat year-over-year, at -0.4 percent and 0.6 percent growth respectively. Year-to-date industrial absorption was pushed up to 623,485 square feet by continued positive absorption in the third quarter. The three largest submarkets — Nashua, Manchester, and Portsmouth —made up the majority of that absorption, while two of the smaller submarkets — Concord and Bedford — are the only ones experiencing negative year-to-date absorption. The largest new lease of the fourth quarter of 2017 was Bensonwood Woodworking’s lease of more than 100,000 square feet of space at 25 Production Avenue in Keene. The space will be used mainly for manufacturing purposes. On the capital markets front, the largest transaction of the quarter was the purchase of 55 and 85 Mechanic Street, a 119,000-square-foot multi-tenant …
The retail market in Connecticut is alive and well. Sure it’s changing but what industry doesn’t experience change? There are numerous retail categories that continue to post healthy sales while also keeping their new store counts in a growth trajectory. Other categories will adapt to consumer trends and stay relevant in the world of brick and mortar. As we close 2017, we see that traditional shopping centers, especially grocery-anchored centers, are the solid performers in the sector. The “services” or “daily needs” category of retail continue to flock to these centers mainly because of consumer routine. The “services/daily needs” category includes health/fitness, traditional sit-down restaurants, quick-service restaurants, pharmacies, pet supply retailers, wireless communications, medical (walk-ins) and banking. Traditional neighborhood centers are becoming more conscious about merchandising with this specific category while trying to avoid deals with the more risky retail categories, such as off-priced apparel. The big-box power centers and the centers with large chunks of vacancy are another story, and there will be winners and losers. Geography plays a big role here and it’s not the dead-end road that some suggest. Over the past 18 months, my team’s exclusive leasing portfolio has had two Kmart closures in two separate …