In the Greater Boston area, retail real estate seems to have a hopeful outlook for 2012 and beyond. Market conditions in the general Boston retail real estate realm improved slightly with the overall retail vacancy rate decreasing from 4.8 percent in the second quarter of 2011 to 4.6 percent in the third quarter — down significantly from the 5 percent fourth quarter 2010 (Costar Q3 2011 Boston Retail Market Retail Report).
Boston’s retail net absorption increased dramatically to a positive 1.09 million square feet in third quarter 2011 — up from a positive 822,957 square feet in the previous quarter. Average quoted asking rental rates however were still low at $15.27 per square foot in third quarter 2011.
In addition to improvements in vacancy rates and net absorption, the Boston retail market had several major retail lease signings in 2011, including a 60,000-square-foot Stop & Shop relocation in North Reading, Massachusetts, and a 45,000-square-foot Whole Foods Market signing in Lynnfield, Massachusetts. Also notable was the development of the 600,000-square-foot Northborough Crossing project anchored by Wegmans.
The Boston area retail real estate scene should continue to show signs of recovery and positive motion, as the local economy slowly pushes upward toward higher mobility amidst increases in local consumer confidence, spending and job growth.
Some of the key factors helping to drive this retail recovery while creating retail real estate opportunities include the increase of mixed-use developments and redevelopments, the increase in the development of residential apartment towers and biotech/pharmaceutical laboratory facilities, expansion of deep discount stores, and an increase in restaurant and QSR franchising and overall unit expansion.
Massachusetts continues to be subject to a scarcity of affordable commercial real estate. Combining this with tight commercial lending and funding resources, as well as a lack of big-box anchor retailer expansion, new traditional-style retail shopping center and power-center developments seem to be sort of a thing of the past in the Greater Boston area. However, throughout the past decade, savvy developers and creative municipal planners have brainstormed larger mixed-use developments (often as re-uses of older industrial and office campus properties).
The trend toward mixed-use developments, especially in urban districts and along major highway corridors, is a welcome one, as consumers are presented with innovative, more-desirable shopping and lifestyle experiences, while trade areas and neighborhoods are provided with massive chunks of new retail space that many would have not thought possible to create in coming years.
Some major mixed-use developments in the pipeline — such as Somerville’s Assembly Square/Assembly Row, Lynnfield’s Market Street, South Boston’s Seaport Square and Fan Pier, and Newton’s Chestnut Hill Square — will create more than 2.5 million square feet of new retail, restaurant and entertainment space in the local market. Retail developers including Federal Realty Investment Trust, New England Development, and WS Development have been key forces behind establishing these local commercial epicenters.
Development in other sectors will also create new retail demand in Boston. New skyscrapers and other large building projects include luxury residences, college dormitories and office/lab space for biotech and drug companies. Prominent residential developments breaking ground in Boston in 2011 include Millennium Place III in Downtown Crossing and the Victor on the Rose Kennedy Greenway, each featuring more than 370,000 square feet of their own luxury residences. Emerson College and Suffolk University recently opened 457 new dorms in the heart of the former Combat Zone downtown, adding to the existing 1,100-plus dorms developed by Emerson in recent years.
New England Development and partner Houston Co. announced they would break ground in 2012 on a 357-unit residential tower with underground parking garage and street-level retail space where Anthony’s Pier 4 restaurant now stands in the Seaport District.
In the scientific realm, Vertex Pharmaceuticals, Novartis, MIT and Harvard University’s co-funded Broad Institute, Biogen and other firms have broken ground or announced plans to enter Boston’s Seaport District and Cambridge’s Kendall Square district with massive laboratory and office projects.
What does all of this mean to retail? As droves of new students, urban residents, research professionals and scientists enter these buildings, they will seek retail stores, restaurants, pubs and entertainment facilities — resulting in absorption of nearby vacant space, as well as additional development and redevelopment of adjacent street-level retail.
In the meantime, megastores such as Walmart, Target and Ocean State Job Lot are slowly but surely trying to penetrate the urban landscape in Greater Boston. Walmart has been eyeing sites in the inner-city neighborhoods of Boston, and considering a former Circuit City space in Somerville for its Walmart Market grocery concept. Target has been looking at purchasing the site of the former Filene’s store in Downtown Crossing. Ocean State Job Lot has absorbed several big-box properties in recent years, including the former Stop & Shop building in Medford, Massachusetts.
— Jim Speros is the director of Retail Real Estate at Boston Realty Advisors