NAIOP Supports Baker-Polito Housing Legislation

housingpressconference
On Monday, NAIOP was pleased to join Governor Baker, Lieutenant Governor Polito, and Undersecretary Chrystal Kornegay to support a new initiative to increase housing production in the Commonwealth. The Administration’s Housing Choice Initiative creates a new system of incentives and rewards for municipalities that deliver sustainable housing growth. It also creates a new technical assistance toolbox to empower cities and towns to plan for new housing production and proposes legislative changes, through An Act to Promote Housing Choices, to deliver smart, effective zoning at the local level. (A section by section summary of the bill is also available.)

NAIOP believes the production of workforce housing is critical for the continued growth of the Massachusetts economy and we are pleased to support this initiative. Unlike the extremely problematic zoning legislation that is supported by planners and environmental groups and opposed by the real estate industry and municipalities, this bill does not include language that would hinder the production of housing. Instead, it rewards communities that are producing new housing units and have adopted certain best practices with a new Housing Choice Designation.

Cities and towns that receive the Housing Choice Designation will be eligible for new financial resources, including exclusive access to new Housing Choice Capital Grants, and preferential treatment for many state grant and capital funding programs, including MassWorks, Complete Streets, MassDOT capital projects and PARC and LAND grants.

Under the legislation, the following local zoning changes would require only a majority vote of the local legislative body:

  • Reducing dimensional requirements, such as minimum lot sizes, to allow homes to be built closer together.
  • Reducing required parking ratios, which can lower the cost of building new housing and accommodate development on a smaller footprint.
  • Creating mixed-use zoning in town centers, and creating multi-family and starter home zoning in town centers, near transit, and in other smart locations.
  • Adopting “Natural Resource Protection Zoning” and “Open Space Residential Development.” These zoning techniques allow the clustering of new development while protecting open space or conservation land.
  • Adopting provisions for Transfer of Development Rights (TDR), which protects open space while creating more density in suitable locations.
  • Adopting 40R “Smart Growth” zoning, which provides incentives for dense, mixed-use development in town centers, near transit, and in other “smart” locations.
  • Allowing accessory dwelling units or “in-law” apartments – small apartments in the same building or on the same lot as an existing home.
  • Allowing for increased density through a Special Permit process promoting more flexible development.

While it does not mandate that any town adopt these zoning best practices, it does remove the barrier of having to convince a supermajority of the legislative body to adopt them.  

Unlike the zoning bills referenced above, this bill has the support of all of the key players – municipalities, business groups, housing advocates, environmental groups, and real estate. NAIOP looks forward to working with the Baker Administration and the legislature to advance this important legislation, which will be an important step in truly addressing the housing crisis facing Massachusetts.

NAIOP/SIOR Annual Market Forecast Remains Positive

This guest blog post was written by Mike Hoban of Hoban Communications.

Elisif_20171129_1972Fueled by one of the strongest economies in the nation, the Boston commercial real estate market should continue to thrive for the foreseeable future. That was the conclusion of the enthusiastic panel at the 2017 NAIOP/SIOR Annual Market Forecast held last week at the Westin Waterfront Hotel before a crowd of 450 CRE professionals.

Moderated by David Begelfer, CEO of NAIOP Massachusetts, the panel included Molly Heath, Executive VP, JLL (Cambridge); Ben Sayles, Director, HFF (Capital Markets); John Carroll, Executive VP, Colliers International (Suburbs); Ron Perry, Principal, Avison Young (Downtown); and JR McDonald, Executive Managing Director, Newmark Knight Frank (Industrial). Barry Bluestone, Professor of Public Policy at Northeastern University and Senior Fellow at The Boston Foundation, set the table for the program with an economic forecast that – with one major caveat – bodes well for the long-term health of Greater Boston CRE.

Bolstered by the highly educated workforce provided by the educational and medical institutions located in Greater Boston, the Massachusetts economy has outperformed the U.S. economy nearly every year since 2009. GDP growth for the Commonwealth has generally been in the 2.5 to 3.0 percent range since 2010, a figure that is significantly above the national average of 2.0 during that period. The Bay State has added 355,600 jobs since the recession (including 62,500 last year), an 11.2 percent increase since 2009. The 4.2 percent unemployment rate has led to virtual full employment, and with the tight labor markets, average wages are beginning to increase, albeit slowly. And none of the factors that typically contribute to a slowdown are in evidence.

Elisif_20171129_1971But despite the positive outlook, there is a looming threat to the overall health of Greater Boston economy, he cautioned. “The housing stock is limited and growing too slowly to meet the demand, and as a result, home prices and rents continue to rise,” said Bluestone, who is one of the co-authors of the Boston Foundation’s 2017 Greater Boston Housing Report Card. The price of housing is pushing workers farther away from the urban core, causing housing prices in traditionally affordable communities to escalate, as well as putting a strain on an overburdened public transit system. The Housing Report Card estimates that the region will need an additional 160,000 housing units by 2030 to accommodate its expanding population (an additional 342,000), “and that is going to be a challenge,” Bluestone concluded.

Elisif_20171129_1988JLL’s Heath led off the program with an overview of the Cambridge office and lab markets. “The Cambridge market is one of the strongest markets that we track globally at JLL, and it continues to be driven by this incredible demand from the tech and life science clusters,” she stated, adding that the demand is coming not only from organically grown companies, but outside firms seeking to establish an R&D presence in close proximity to MIT, Harvard, and the educated workforce. With a vacancy rate below 3.0 percent, there continues to be upward pressure on rental rates, with office (by 13 percent) and lab (23 percent) soaring well above previous highs. Achieved rents for office space in E. Cambridge are now in the low $90’s (gross), with lab space in the low $80s (NNN). And due to the lack of supply in the market, “we really do believe that there is room (for rents) to run,” said Heath.

Elisif_20171129_1992Colliers’ Carroll reported that “the suburbs are alive and well”, as the market has added over five million SF of positive absorption since the downturn. There has also been a steady increase in rent growth in the Class A office market, approximately 10 percent since 2009, with new construction in Waltham achieving rents in the low $50s. The Class B market is not faring as well (although there is some rent growth occurring in select markets), with some of the older building stock being slated for repositioning or demolition to make way for senior living, hotel and other non-office uses (including 450,000 SF of properties in Chelmsford). One particularly bright spot is the emergence of biotech in the suburbs. The Gutierrez Company is currently constructing a five-story, 350,000 SF building for EMD Millipore (2018 Q3 completion) in Burlington, Alkermes is “close to signing” a lease for a 250,000 SF build-to-suit in Waltham, and Waltham-based Tesaro is in the market for a 300,000-500,000 SF suburban campus.

Elisif_20171129_2005Citing the enormous amount of commercial, residential, retail and restaurant development underway in the Seaport and other Boston locations, Avison Young’s Perry observed that “Boston is clearly a different city today than it was even five years ago.” The in-migration to the city by firms seeking talent continues, he said, citing the recent relocations by Reebok, PTC and Alexion to the Seaport, as well as Amazon’s establishment of a Boston presence with the 150,000 SF lease at 253 Summer St. and Rapid7’s relocation to North Station. Demand remains strong Downtown, with over 4.5 million SF of requirements in the market, including nine companies seeking 100,000-500,000 SF. CBD Class A rents range from the mid $40s to the mid $80s (Back Bay high-rise), and vacancy rates in the top floors of the towers (10 percent) are nearly in equilibrium with the lower floors (9.4 percent), as tech companies continue to absorb space on the lower tiers.

Elisif_20171129_2006NKF’s McDonald reported on the industrial market – the newfound darling of investors and developers – noting the transformational effect that Amazon and e-commerce has had on the product type. With 12.8 percent average annual returns to investors over the last five years, industrial has outperformed both retail (12.1) and multifamily (9.9), driven by feverish demand for “last mile” properties located in urban and infill submarkets. That demand has driven rents “way beyond the norms” of what had traditionally been $5 to $6 psf to the “high single digits and low teens” for buildings such as 480 Sprague St. in Dedham, a 234,000 SF warehouse that straddles the Boston line. And warehouse space located within the urban market, such as 202 Southampton St. in the South End (which lacks basics such as air-conditioning), is fetching $20 psf, based solely on location.

Elisif_20171129_2017HFF’s Sayles addressed the ‘When will the cycle end?’ question early on his presentation. “End of cycle concerns have largely abated,” he reassured the gathering. “Nobody is really talking about that right now, instead, what people’s biggest concern is, ‘If I sell, what am I going to do with that capital?” He expects pricing for assets to remain flat in the near term with cap rates trending downward. Financing for assets is up by 17 percent from Q3 2016 to Q3 2017, but investment sales for that period declined by approximately 8.0 percent as buyers are choosing longer term holds. Sales volume for Boston is expected to be approximately $13 billion for 2017, with foreign capital again accounting for a significant portion of those transactions.

Begelfer was in full agreement with Sayles’ assessment of the cycle concerns. “Boston is pretty unique. There are only a handful of cities around the country that are experiencing this kind of strong growth,” he observed. “Any slowdown that we see is probably not going to come from the economy, it will be from the cost of construction and land costs, or the pricing of assets. It won’t be caused by a recession, but by our own success,”

My Top Ten Predictions for 2018

2018 image

The CRE industry kept smiling through 2017! Is anyone talking about innings anymore? We just keep doing deals.

So, here are my predictions for the coming year:
1. Amazon will pass on Boston for a campus, but leave us with a great consolation prize.
2. No Turnpike air rights project will start construction (ditto for 2019).
3. Fed. interest rates will be up 75 basis points by end of year.
4. In Boston, more condos will be permitted than rental apartments (other than the neighborhoods).
5. An office or lab lease will hit $100 per square foot in Cambridge.
6. Construction costs, on average, will be up 7%.
7. More than one million SF of commercial space will commence on spec.
8. The 128 office market will show more transactions (both numbers and SF) than the downtown market.
9. Foreign buyers will begin to acquire major CRE property outside of Boston/Cambridge.
10. And, yes, the Patriots will do it again.

Below were my predictions for 2017. Not the best batting average, but here is to a New Year!
1. Cap rates will finally start to rise in the Boston/Cambridge markets.
2. A new Fortune 500 corporate HQ will relocate to Boston.
3. Apartment construction starts will drop in downtown Boston.
4. The Dow Jones Industrial Average will finish the year down.
5. Fed interest rates will be raised twice.
6. Foreign investment will increase as a percentage of total CRE sales in Boston.
7. There will be a noticeable business migration from 495 to 128, 128 to Boston, and Cambridge to Boston.
8. Drones will pilot consumer product delivery.
9. An infrastructure bill will pass Congress and be signed by the President.
10. No viable candidate will step forward to run against Mayor Walsh.

A Note of Economic Optimism

MassBenchmarks Current Economic Index, was recently released by MassBenchmarks, the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston.

The bottom line is very positive with our local growth projected to continue.

Some highlights:

  • Massachusetts real gross domestic product grew 5.9% in the third quarter of 2017 (vs. nationally at 3.0%).
  • The Commonwealth exhibited very strong employment and earnings growth during the third quarter.
  • Payroll employment grew at a 2.1% annual rate in Massachusetts in the third quarter.
  • Wage and salary income in Massachusetts grew at a very robust 10.5% annual rate (vs. 3.8% growth for the nation).
  • Wage and salary income grew 5.8 percent year over year in the Bay State, significantly stronger than the estimated 2.7 percent growth for the nation.
  • “Labor markets appear to be nearly back to full employment levels,” noted Alan Clayton-Matthews, MassBenchmarks Senior Contributing Editor and Associate Professor of Economics and Public Policy at Northeastern University.
  • “Despite these low unemployment rates and anecdotes about a shortage of workers, employment growth continues unabated without clear signs of wage rate pressures. However, It may be that the rapid growth in wage and salary income in Massachusetts is signaling the beginning of an acceleration in wage rates, but it’s too early to tell.
  • As measured by regular sales tax receipts and motor vehicle sales taxes, spending in the state has been surprisingly weak given strong income growth and the surging stock market.
  • Spending on taxable items declined in the third quarter by 3.3%. Year over year, this spending grew by a relatively paltry 1.7% between the third quarter of 2016 and the third quarter of 2017.
  • The MassBenchmarks Leading Economic Index shows that the state’s economy is expected to continue to grow at a moderately robust pace.

Being cautious is a prudent business characteristic these days, but the data still shows a healthy Massachusetts economy.

To win over Amazon, it’s all about the people

This post originally appeared in the Boston Business Journal.

Since Amazon announced its plans to open a second headquarters location, the region has been abuzz, but, to date, the focus has been on real estate. Where can 8 million square feet of space be developed? Does it need to be in one location or multiple sites?

Amazon, however, is not really looking for space. It is looking for people. These are the skilled workers that fuel the local economy, due to the region’s exceptional ability to attract students and immigrants.

So, while we are spending so much time and effort to present the best site for Amazon’s real estate decision makers, we had better be equally as focused contemplating the human resource side. Where will Amazon’s workers come from? Will they be relocating from other areas around the country?

Reality paints a different picture. Other than the post 2009 recession years, Massachusetts has experienced consistent net domestic migration. We are currently close to full employment. There are few workers available and qualified for the jobs that are currently open. Therefore, it’s more likely that these Amazon workers will come from other local companies. The critical question is how will those companies survive and grow with an even tighter job market? Will they, in turn, be forced to relocate?

To make matters even more complex and challenging, there is a multiplier effect with a company like Amazon establishing a major local presence. Other companies will look to locate near this “mother ship” and many of the service companies in the area will have to bulk up to handle the additional demand. As a result, there may be a need for upwards of 150,000 more positions to fill over the next 10+ years.

The dog that chases the car, but then catches it, had better have a plan for what happens next. If we are serious about getting Amazon to choose Massachusetts, let’s strategize about what it would take to actually increase our labor force. As with the Olympics, planning for the possibility of success can be a beneficial, long term, strategic exercise. In any case, we should prepare ourselves for sustainable growth, whether, or not, any individual company locates here.

Three strategies for retaining more skilled workers and attracting others to come here should be pursued. The first deals with the issue of the high cost of living. The second is job training/retraining. The last is immigration policy.

The primary component of the cost of living is housing. We need to produce more affordable, urban housing, and also open up opportunities for “starter homes” for families in communities that are accessible to the new jobs and with good school systems. Schools, commuting time, and affordability are what drive home purchases (particularly for families). Unfortunately, local zoning in most of the Commonwealth discourages multi-family housing, as well as smaller, denser single-family homes.

As for job training, we will need to adapt our institutions and training pathways to help workers acquire new skills. We have not been sufficiently agile to respond to the needs of those businesses that are expanding and hiring. Even a college degree is not sufficient to guarantee a new job in the new economy. New training methods that can be adapted and adjusted in short order will be needed to fine tune a prospect’s skill set to match a company’s requirements. Lifelong learning that is priced right, available on demand, and responsive to the changing needs of the workplace must become the norm.

Finally, we have benefited greatly by the historic flow of immigrants. Were it not for immigration, we would not have accommodated the strong economic growth over the last 20 years. Local and state leaders must flex their political muscles to ensure that our national policies do not impede the beneficial impact that comes from a wide range of skills entering and fueling our economy.

Yes, we can benefit from a thoughtful strategy to attract Amazon to our region. But, over time, we will be well served with a realistic plan to increase our skilled workforce that will be the honey that easily attracts many more companies to locate and expand here.

GOLF FOR GOOD: NAIOP Raises $200,000 for Heading Home

checkNAIOP Massachusetts held its 29th Annual Charitable Golf Tournament on June 22nd, raising $200,000 to support Heading Home, Inc.’s programs to end homelessness. The amount brings the total amount donated to Heading Home to more than $2.9 million and maintains NAIOP’s role as Heading Home’s largest corporate donor. Heading Home’s mission is to end homelessness in Greater Boston by providing a supported pathway to self-sufficiency that begins with a home, together with critical services such as life skills, financial literacy, and job training. To learn more about Heading Home and the vital services it provides, please visit www.headinghomeinc.org.

Our industry continues to come together, in good times and bad, to show support for the homeless families and individuals served by Heading Home. We are especially proud of our member volunteers, our staff, and our generous donors who helped us reach our goal for this donation. Special thanks goes to our Golf Committee and John Myers of Redgate, in particular, who chaired the event committee.

Held at a new location this year, The International, this signature CRE tournament drew nearly 270 golfers from all sectors of the commercial real estate industry for a day of fun, networking, and fundraising. The International is a golfer’s paradise that features two award-winning 18-hole golf courses, including The Pines, designed by Robert Trent Jones.

NAIOP Massachusetts thanks this year’s many sponsors and donors who gave so generously to this event, particularly Redgate, who served as Platinum Sponsor; Gold Sponsors National Development, New England Development and Newmark Grubb Knight Frank; and Pin Flag Sponsor Callahan Construction Managers. It is only through their support that the tournament is able to raise funds needed to help Heading Home accomplish its goal of ending family homelessness.

We are already looking forward to June 14, 2018 for another great tournament and, together, taking one more step towards ending homeless.

Choosing Massachusetts for Business: Key Factors in Location Decision Making

Zakim_SkyA study commissioned by the non-partisan economic development organization, MassEcon, and conducted by the UMass Donahue Institute‘s Economic and Public Policy Research group, was recently released. The good news is that the vast majority of companies that chose Massachusetts as a place to expand their business would do it again. This consensus was largely based on Massachusetts’ innovative economy, industry clusters, and skilled workforce.

As with all good news, there are some troubling challenges and concerns that were voiced by the businesses about future growth in the Commonwealth:

  • TRANSPORTATION: Companies in Greater Boston are concerned about highway congestion and public transit capacity, while businesses outside the urban core worry about a shortage of public transportation. MBTA reliability is vital to the ability to attract and retain workers, expressing concerns that not enough is being done to accommodate a growing population.
  • HOUSING: The availability and affordability of housing was a significant concern statewide, a challenge to attracting and keeping employees, especially younger employees. Costs in Greater Boston, in particular, are inordinately high, limiting options for low and middle-income workers.
  • BUSINESS COSTS: In general, for companies locating in Greater Boston the advantage of skilled labor outweighed various higher business costs; but labor, health care, and energy costs were identified as challenges to business in Massachusetts. Business costs seemed to be of less concern to those companies that considered and compared other states than to those already doing business in the Commonwealth. Companies engaged in manufacturing were more sensitive to cost challenges of health care and energy than companies in Greater Boston.
  • QUALITY OF FUTURE LABOR SUPPLY: Although more than 90 percent of survey respondents said the availability and quality of the workforce were important to their decision to locate in Massachusetts, some companies are struggling to find enough technically trained workers and those with middle-level skills. Continuing to produce talented labor must be a priority for the state, respondents indicated.
  • ECONOMIC DEVELOPMENT ASSISTANCE: While over half of the businesses surveyed were solidly favorable about the effectiveness of economic development officials in helping them become established in Massachusetts, others reported that the system is confusing.  Some said they sought a “roadmap” with which to navigate the various economic development organizations.

The Commonwealth has been experiencing one of the best periods of economic growth in its recent history. The problem with success is that it sometimes breeds complacency. If we are to maintain and enhance our position as one of the best locations to grow a business, we had better heed the warnings and fix our own house before it begins to lose its luster against all the many worldwide competing centers for growth.