Category Archives: Leasing

Office Space: Dead on Arrival or a New Frontier?

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Tenants Are Getting a Crash Course in Remote Work’s Pluses and Minuses

Written by: Tamara Small | This article was originally published by Banker & Tradesman on October 4, 2020

As we approach the seven–month mark since the state of emergency was declared and office workers transitioned to Work from Home (WFH) overnight, many people are asking the same question: Will workers return to the office?  

A review of statistics paints a bleak picture. Office sublease space is at a record high. Occupancy rates in Boston and Cambridge remain in the single digits, while in the suburbs, it’s about a 10 percent occupancy rate. Companies that once said they would come back after Labor Day are now pushing tentative return dates out to January or well into 2021. We have seen the largest quarterly increase in vacancy rates since the fourth quarter of 2001.  

Given the uncertainty about what is to come, few transactions are happening. Rents are beginning to drop and short–term leases, once unheard of, are becoming much more common. Small businesses that support office workers from dry cleaners, to sandwich shops, to shoemakers remain closed. The economic impact cannot be overstated.  

Eric Rosengren, President of the Federal Reserve Bank of Boston, recently commented on the impact of so many empty office buildings.  

“It’s going to be very difficult for Massachusetts to fully recover until Boston fully recovers,” he said. “And a full recovery in Boston requires people to occupy the office buildings we have downtown.” 

However, we are now starting to see more people return, slowly, but surely, to their offices. And, when there is a vaccine, and children return to school and daycare, and commuters get back on public transit, as an industry we will have a unique opportunity to use what we have learned during this time to make offices better than ever. But what do we do in the meantime? 

While only 4 in 10 Americans can work from home, for those who have that privilege, the overnight transition to WFH was fairly seamless. Many companies who had never offered WFH as an option realized that work can, and will, get done remotely. Technology experts have become the glue that holds the office together – constantly adapting and innovating to accommodate cybersecurity, equity and access challenges.  

Tenants Discover Downsides 

There is a lot of positive that came out of this overnight shift. Several studies show that by eliminating commutes, some workers have gained invaluable personal time. Traffic congestion in our cities has improved dramatically, and many municipalities are expanding their alternative transit options, adding bike lanes and expanding walking paths to encourage outdoor activity. 

However, the longer WFH continues, the more we start to hear about its negative impacts.  

First, the boundaries between work and home have blurred. People are working more, and they are exhausted.  

Second, onboarding and mentorship are suffering. Bringing a new person onto a team that is completely remote is extremely challenging, as is mentoring a more junior employee or intern.  

Third, and most importantly, the collaboration and personal connections that shape successful office culture are difficult to replicate in a remote world. Remote work prevents learning by osmosis and diminishes opportunities for teamwork by eliminating those invaluable five-minute conversations that engage people across teams and disciplines. This has a significant impact on employees, particularly those new to the workforce.  

A recent study of employers by MassDOT/MBTA shows that very few companies plan to switch to WFH entirely when the world returns to “normal”:  52 percent of employers surveyed will send all employees back to the office;  41 percent will send some employees; and only 3 percent will remain full-time WFH.  

Embrace Office Innovation 

Clearly, employees will come back to the office, but work from home is here to stay. People want flexibility, but also some human interaction and collaboration. Are our office spaces ready to rise to the challenge? In short, yes. I predict employers will increasingly adopt a hybrid model that includes some remote and some in–person days. This means a total revision of what office space looks like, how it works, and how employees interact.   

A new and revived office sector will include an increased focus on wellness, collaboration, technology, and community. These components are critical as space becomes more fluid and flexible.  

At a recent NAIOP event, a panel of local experts shared what they are already beginning to see for the future of the office. Elizabeth Lowrey of Elkus Manfredi said, “the days of stack–and–pack are over.” Vickie Alani of CBT shared that we will likely see home offices remain dedicated spaces for focused work, while office spaces will be designed to enable remote and in–person collaboration. Kimberly Smith of Knoll focused on the enhanced role of technology to ensure that people at home and at the office “have an equitable experience in their office interactions.” And moderator Lauren Vecchione of Colliers Boston summed it up with the following statement: “If you take anything away from the discussion today, it should be that employees will come back to the office.” 

So, while the next few months may be a challenge, now is not the time to ring the death knell for the office sector. Instead, it’s time for CRE to embrace innovation and give the people what they want – a new and improved office for the next generation, today.

Optimism Colors Shifting Views of Development Market

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Biotech Could Benefit From Open Office Space

Written By: Colin A. Young

This article was originally published by The State House News on September 15, 2020.

SEPT. 15, 2020…..Commercial real estate and development experts said they are confident that the pandemic won’t spell the end of the development boom in and around Boston, but they said they are keeping their eyes on consumer and workforce trends that might reshape their industry.

During a virtual panel convened by NAOIP Massachusetts, the development pros said that while the COVID-19 pandemic slowed construction timelines and injected generous doses of uncertainty into the equation, development still has plenty of track in front of it in the Boston region.

“We operate between Boston and Washington, D.C., and I think that Boston is clearly the strongest market of those three and maybe the strongest market in the country,” Shawn Hurley, president of Marcus Partners said, referring to the Boston, New York City and Washington, D.C., markets. “It certainly seems that development in this market remains really strong and that our economy is more diversified than ever before. So we feel very good about the Boston market and how we’re positioned today, albeit in a very volatile world and as we enter what appears to be a potentially very volatile fall.”

Lauren O’Neil, senior managing director at JLL Capital Markets, said she doesn’t foresee a persistent slowdown in development in the Boston area. After desirable long-term investment-grade tenant leases, she said development appears to be second on the investment strategy depth chart.

“I think the thesis is that we may be in a bit of a slowdown now, but in two to three years when a project is set to deliver it sets up nicely for the rebound in this current slowdown, I won’t go as far as to call it a recession. And so we’ve seen investors and debt capital alike gravitating towards new developments,” O’Neil said. “And in fact, it’s probably easier right now to capitalize on new ground-up development than it is a value-add office deal, for example, where you might have 70 percent occupancy and you’re trying to get to 90 percent occupancy in the near term. There’s just more conviction on what the world will look like in a couple years versus over the next six months.”

O’Neil said hotels and retail developments are struggling to get financed right now. Retail developments with a grocer and that have “a compelling story” might fare better, she said.

“But with the delinquency rate on existing loans in the mid-teens for those product types, it’s going to be a bit of a challenge to get those C-Suites on board with making any sort of aggressive bets on retail and hotel for the foreseeable future,” she said.

Chris Brown, CEO of construction management firm John Moriarty & Associates, said biotech remains one of the hottest sectors in the marketplace right now and the “great need” for added research and lab space has not been diminished by the pandemic. At the same time, there’s “a little hesitancy” to commit to any deals involving traditional office space, given the uncertainties around the future of remote working and the return of most employees to the office.

“Biotech is probably the sector of the market that … will have the most traction moving forward,” he said.

Tamara Small, the CEO of NAIOP Massachusetts who moderated Tuesday’s discussion, asked Brown about converting office space to research or lab space, citing conversations she’s had with people who have suggested that “biotech is the new office.” Brown said his firm is working to “reposition” some office space at the Cambridgeside Galleria and has “a few other projects in the pipeline that look to take existing office space and potentially either add on to it or reposition it for biotech and lab space.”

“That seems to be one of the hottest sectors for us and the most interesting questions we get is in regards to that type of product as well,” he said.

O’Neil said converting office spaces to research or lab space for life sciences and biotech companies could help meet some of the demand for those spaces sooner than the pipeline of new construction could on its own.

“The demand from the tenants on the life science side was growing at an annual growth rate of a little over 8 percent and it’s projected to continue through 2023 at just over 7 percent, which if you look at the current 25.7 million square foot market, that means there’s demand for over 34 million square feet,” she said. “We’re about 3 million short of meeting that demand based on the current pipeline for 2023. Now, that generally includes only ground-up, brand new developments, so maybe the conversion factor will start to fill in some of that.”

The panel also took on the suburbs and the question of whether the pandemic, and the changes it has brought to commutes and daily life, is creating a time for the suburbs to shine and draw even more people out of urban cores. In July, real estate market analysts at the Warren Group said increases in sales in more rural parts of Massachusetts were “far in excess” of the state average.

“Cities are going to endure. The intrinsic qualities that brought everybody to them pre-COVID, we’re going to appreciate them all the more when this ends, and it will end. So we just envision a totally different kind of lifestyle returning when we’re through this,” Abe Menzin, a principal at the development firm Samuels & Associates, said. “In my more optimistic moments, I actually think that remote work options for people could actually enhance the vitality of cities. It could help shave the peaks off of some of the congestion issues that we’ve encountered, and could give people more flexibility in their lifestyle and make a livable city like Boston even more liveable.”

Kirk Sykes, a managing partner at Accordia Partners, is banking on people continuing to want to live in Boston but said aspects of two of his most significant projects aim to address concerns that the pandemic has highlighted. Sykes is involved in the plan to redevelop the site of the Boston State Hospital into a development with more than 360 housing units near Franklin Park and Mass. Audubon’s Boston Nature Center and Wildlife Sanctuary in Mattapan. He’s also part of the plan to convert the old Bayside Expo site in Dorchester into more than 1,000 units of housing, retail space, office space and more.

“We feel extremely blessed to have a 65-acre park, and the beach and the ocean in front of Bayside. And as such, I think those characteristics will play heavily into corporate relocations for campuses or even the decision to get on the train and go for five minutes to Kendall [Square] as opposed to being in Kendall,” he said. “So we’re designing in the desire to be in an environment that gives you the air, the light, the breath, the view that you might get in the suburbs, but getting it in a 20-minute bike ride, 30-minute walk or five-minute Uber/Lyft to the Financial District.”

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09/15/2020

COVID 19 Update: Eviction Legislation Before Senate, Clarity on Construction Moratoriums and Other Issues Affecting CRE

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Construction Moratoriums and Guidance

In recent days, there has been a great deal of confusion over construction moratoriums at the state and local level. We hope the following summary, which reflects the latest information, provides some clarity.

State: On Tuesday, March 31, the Baker-Polito Administration updated the construction related guidance in response to the COVID-19 pandemic. The new guidance limits “essential” construction to housing and critical infrastructure activities. Under the revised list, private nonresidential construction is not considered essential (unless it falls within one of the specified exemptions). As of noon, April 1, only housing projects (including mixed use with housing, infrastructure projects and construction related to COVID-19 can proceed. On April 2, the state updated the FAQ page to answer questions on this issue. The state also issued supplemental guidelines to limit COVID-19 exposures on construction sites and additional guidance outlining the enforcement of COVID-19 safety guidelines. It specifically states that “for all private projects the primary enforcement responsibility rests with the city or town.”

Local: Boston, Somerville, Cambridge, and numerous other cities and towns have issued a halt to all construction until further notice. Companies should maintain the crews necessary to make sure sites are “safe and secure.”  On April 5, Mayor Walsh asked that even if a job is one of the few that is allowed to move forward under current guidelines, companies should consider shutting down. In addition, effective April 2, Cambridge issued its own construction guidance

Commercial and Residential Eviction Moratorium Legislation

On Thursday, April 2, the House passed H. 4615, An Act providing for a moratorium on evictions and foreclosures during the COVID-19 Emergency. The bill provides eviction moratoriums for both commercial and residential tenants. The bill is now before the Senate, where a vote is expected on April 9.

Property Tax Update

As part of Chapter 53 of the Acts of 2020, the municipal relief bill signed by Governor Baker on April 3, municipalities are allowed to extend the due date of quarterly taxes to June 1st.  
 
The City of Cambridge announced it is extending the due date for Second Half Real Estate and Property Tax bills until June 1, 2020. In addition, interest and other penalties on late payments made on Excise Tax and water/sewer bills with due dates after March 10, 2020 will be waived if payments are made before June 30, 2020. It is our understanding that this applies to both residential and commercial.
 
The City of Boston has extended the due date for property tax bills in Boston until June 1st to give residents more flexibility during the ongoing public health crisis caused by COVID-19. It is our understanding this only applies to residential.

BPDA Covid-19 Response

The BPDA is postponing all BPDA-hosted public meetings regarding Article 80 development projects and planning studies until further notice. While projects will continue to be reviewed internally by BPDA staff, the public review process for both Article 80 development projects and the BPDA’s planning studies is on hold until public meetings can be resumed. If you are a landlord or tenant of the BPDA’s housing program, please visit the BPDA’s housing page for information and resources. As the BPDA’s response to Covid-19 continues to evolve, please check this page or follow @bostonplans on Twitter for updated guidance.

COVID-19 Massachusetts Relief Fund

On April 6, Governor Charlie Baker and First Lady Lauren Baker announced the launch of the COVID-19 Massachusetts Relief Fund. It is designed to support organizations assisting Massachusetts’ most vulnerable residents, frontline health care workers, and other essential service providers.  Donations are needed and encouraged.
 

What Does 2020 Hold for CRE in Massachusetts? Companies Incorporate Real Estate as Recruitment Tool

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By: Tamara Small, CEO of NAIOP Massachusetts

The following first appeared in Banker & Tradesman on December 29, 2019.

The end of 2019 marks more than 10 years in the current real estate cycle. As we enter a new decade, now is a good time to take stock of current market conditions and make predictions for 2020. 

Experts are predicting continued, moderate, growth for 2020. Nationally, investor appetite for real estate remains strong and active in all sectors – retail, industrial, lab, office and housing. National vacancy rates are not showing signs of oversupply, and banks are remaining disciplined and conservative in their lending practices.  

While slow and steady job growth is expected, trade wars, political uncertainty and a labor shortage pose the biggest threats to continued economic growth. Market fundamentals remain strong, but such threats should be monitored closely given their potential to dramatically impact the market. 

Access to Talent Drives Market  

The Greater Boston market had an exceptionally strong year in 2019 with record rent growth and tenant demand. Boston remains one of the top markets for foreign investment. However, while continued growth in 2020 is expected, threats exist.   

Construction and land costs continue to soar, weakening returns and potentially threatening the feasibility of new projects. In the third quarter of 2019, Massachusetts real gross domestic product declined 0.2 percent according to MassBenchmarks, while U.S. real gross domestic product grew by 1.9 percent. A labor shortage, which is only expected to continue, is viewed as the single largest threat to the Massachusetts economy.  

At the recent NAIOP/SIOR Annual Market Forecast, which featured leading real estate experts who provided an analysis of the 2019 statistics and predictions for 2020, the need for access to a talented workforce – and what this means for real estate – was a major theme.   

Historically, tenant space was viewed as a cost center by employers, but it is now being used to attract and retain talent. While WeWork’s business model may have been flawed, it did have a dramatic impact on tenant expectations. Whether it’s beer on tap, game rooms or state-of-the-art fitness centers, employers are now using their space to gain a competitive edge when it comes to getting the best talent. This can be seen in the suburbs as well as Cambridge, Boston and surrounding markets, and it will continue in 2020. This all translates into a rising need for new or renovated space and an average tenant improvement allowance average of $5 per square foot. 

Looking Ahead to 2020  

As we enter a new decade, the Boston market remains strong with opportunities opening up beyond the urban core. Limited supply and high demand for lab space are fueling growth. With East Cambridge lab vacancy rates now at 0.8 percent, life science projects are moving forward in Watertown, Alewife, Allston/Brighton and Somerville, as well as Dorchester, the Seaport and South Boston. Cambridge’s success will also create opportunities for well-located suburban assets, particularly transit oriented development projects with the right amenity base.   

Unprecedented growth is expected to continue in the industrial sector. According to Rick Schuhwerk, executive managing director at Newmark Knight Frank, every $1 billion in online sales translates to 1.25 million square feet of new warehouse demand. The demand for “last-mile” facilities near high-density urban centers is driving up values. In the last five years, rents in core urban industrial space have more than doubled. In 2020, with online sales only expected to increase, vacancies will drop and rents will continue to rise. Spec developments are expected as well as a western migration of industrial space.  

On the housing front, according to Kelly Whitman, vice president of investment research at PGIM Real Estate, opportunities exist to upgrade and develop larger suburban apartments. Suburban apartment annual rent growth continues to outperform the urban, and, given changing demographics, a shift away from small units in the suburbs is expected. As the housing crunch continues, these areas outside of Boston’s core are vital to easing the pressure and providing middle income housing.  

On Tap on Beacon Hill 

Finally, while national economic and market indicators tell us that continued growth is expected next year, legislative and regulatory proposals at the state and local levels have the potential to significantly impact the market and should be watched closely. 

Housing: More housing production is needed to keep up with increased population growth. H.3507, An Act to Promote Housing Choices, is targeted at lowering voting thresholds in key zoning votes, allowing for increased production of housing. If it is not passed before the end of the legislative session, anticipate a continued tightening of the housing market, statewide. 

Transportation: NAIOP believes that a functional, accessible transportation system is key to continued development and investment. As area residents and business owners know, congestion has gotten worse in Greater Boston. The Baker-Polito Administration recently filed the Transportation Bond Bill, (H.4002), outlining a capital plan for addressing gaps in transportation infrastructure statewide. Other legislative proposals to address transportation are expected in 2020.  

Fossil Fuel Bans: A number of communities are considering bans on natural gas connections in all new construction, which will likely halt development entirely. While addressing climate change must be a priority, it is critical that policymakers employ achievable measures that are grounded in the reality of today’s technologies, without blocking housing production.  

Seaport by Foot: Walking Tour Recap

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Every year, NAIOP takes its members on a walking tour that explores the latest real estate development projects in a specific neighborhood. This year, NAIOP members toured the Seaport, where they had the chance to see recently opened buildings and get an invaluable sneak peek of what’s to come. A still evolving neighborhood, the Seaport has seen incredible investment in everything from office and lab space, to residences along the water, and innovative retail. The district is 23-acres of mixed-use zoning, including 10 acres of open space, and has become a new hub of commerce, culture, and innovation in the City of Boston.

Icon Theater

The sold-out walking tour kicked off at the Icon Theater. The group got a lesson on the history of the neighborhood from David Martel of Newmark Knight Frank, and an important reminder that what is happening in the Seaport now is the result of over 30 years of work from visionaries, investors, and developers who came together to transform the Seaport into what it is today. Yanni Tsipis of WS Development discussed the billions of dollars of public investment, including the Harbor cleanup and Big Dig, that catalyzed the growth of the Seaport. He also discussed his firm’s massive, transformative development, Seaport Square, including the forthcoming 88 Seaport, a mixed-use retail and office project, and 111 Harbor Way, future home to Amazon.    

121 Seaport Boulevard

The group then headed to 121 Seaport, home to PTC’s global headquarters and Alexion Pharmaceuticals. Developed by Skanska, the project officially opened earlier this year. Carolyn Desmond of Skanska discussed the development of this 17-story, 450,000 square foot elliptical tower, which included the discovery of a long-buried ship during construction! Marc Margulies of MPA then covered the cutting-edge design of the PTC headquarters.  The building’s unique shape provided increased opportunities to build out a truly unique space for the offices, providing optimal light and functionality.  Attendees then toured the PTC office, including its incredible rooftop terrace.

Photo of 121 Seaport
Bruce T. Martin Photography 508-655-7557 btm@bruceTmartin.com 154 East Central St Natick MA 01760

Harbor Way

Outside of 121 Seaport, Martin Zogran from Sasaki discussed his firm’s work to create an expansive public realm program, which weaves together a unique fabric of residences, offices, shops, restaurants, civic uses, and hotels.The master plan is designed to encourage walkability and alternative mobility options with 39% of the total project area being exclusively devoted to pedestrian-only open space. As an example, a tree-lined pedestrian path, Harbor Way, punctuated by plazas and amenity spaces serves as the district’s cultural corridor and north-south connector between the Institute of Contemporary Art (ICA) and the Boston Convention and Exhibition Center (BCEC). Their work will bring a diverse mix of uses, pedestrian-oriented public space, and greater coherence and connectivity to the Seaport.

Photo of Harbor Way

EchelonSeaport

A quick walk across the street brought attendees to EchelonSeaport. Developer Michael Schumacher of The Cottonwood Group and Phil Casey of CBT gave an overview of this 1.33 million square foot community, featuring two condominium towers and one multifamily tower with 60,000 square feet of indoor and outdoor residential amenity spaces. The design, focused on the intersection of art and commerce through the lens of luxury hospitality, will include significant public space and promises to be a striking addition to the Boston skyline. With amenities for both towers ranging from pools to private dining rooms, EchelonSeaport promises to provide residents with much more than just a place to live.

Rendering of EchelonSeaport

The St. Regis Residences, Boston

Attendees then went to the former Whiskey Priest location, which will soon be the St. Regis Residences, Boston. Sean O’Grady of Cronin Development and Rebecca Eriksen of Elkus Manfredi Architects discussed the project, which broke ground in Fall 2018. The project faced a unique caveat in initial design – the property borders the Harbor on two sides. Rising to the challenge, the latest residential waterfront development in the Seaport promises to evoke nautical themes in every aspect of its architecture and décor. Currently slated to open in early 2021, the 114 residences will provide a highly curated experience, featuring signature design, dramatic views, an 8,000+ square foot bistro with additional terrace space, on-site spa, and other luxury amenities.

Rendering of The St. Regis Residences, Boston

Thomson Place

From there attendees went to the Seaport’s Fort Point Channel, where Jamie Carlin and Paul Connolly of Crosspoint Associates discussed the future of Thomson Place – a renovation and reinvigoration of one of the area’s historic warehouses. Scheduled to open in Fall 2019, the project will include office, retail and mixed-use space. Currently home to Trillium Brewing, Bartaco, and a new public plaza, the project brings new energy to the neighborhood, while preserving its historic character.

Rendering of Thomson Place

Networking

The group wrapped up the day at The Grand for a networking cocktail hour sponsored by WS Development. Attendees had the opportunity to chat with brokers, project teams and each other to wrap up a successful tour with a well-deserved cocktail in hand. Plans are already underway for next year’s tour. We look forward to seeing you then!  

How Much Are Smart Buildings Really Worth?

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smartinfographicMITCourtesy of the MIT Center for Real Estate and Real Estate Innovation Lab – Get Smart, Connected & Green

Arguably, the premier commercial office space market in the U.S. – New York City – is showing signs that office tenants will pay a significant premium on rent for space in a ‘smart’ building.

Compared to office leases in the city for non-smart buildings, MIT Center for Real Estate researcher Alfredo Keitaro Bando Hano (2018) found that office properties with smart building attributes attracted rents that commanded a 37 percent premium on effective rent per net square feet. The sample included 454 non-smart building properties and 223 smart office leases using the Compstak transaction database for Manhattan for 2013 and onwards. The MIT Real Estate Innovation Lab continues to research and report on smart, connected and green buildings.

Thanks to new technologies and devices, occupiers now have the possibility to measure and analyze the activity that occurs inside their structures. Companies are not focused on location only anymore; they now they look for more productive and efficient areas, and smart buildings rise as a possible answer to this new requirement.

In search of flexibility and agility, users have pushed changes in architectural and interior design to improve employee satisfaction, health, and engagement, hence better productivity.

Smart buildings are self-sensing. For the purposes of Keitaro’s study, a smart building must have installed one or more smart amenities that go beyond sustainability and aim to improve the occupier experience. Smart amenities include occupancy sensors, automatic windows, cameras with emotion recognition algorithms, and other technologies that capture and provide information to tenants and landlords. Ultimately, a smart building is one that adapts to the needs and preferences of the building’s occupants. And, in the office environment, responding to workers’ needs and preferences stand to significantly increase employee productivity and well-being.

We can predict that in the future, new smart amenities will come to market and offer commercial real estate developers, owners, and investors opportunities to incorporate smart technology in the building’s plans and reap the financial benefits.

That being said, the New York City sample did not delve into the cost of constructing and operating a smart building compared to a non-smart facility. It is not yet clear whether the rent premiums offset the costs to construct, renovate, and operate smart buildings. Further, due to other factors (like location) not all the projects will immediately obtain these premiums just by embracing a smart strategy. Nevertheless, it is worth emphasizing that smart buildings have value.

NAIOP Massachusetts is an industry partner to the MIT Center for Real Estate. Alfredo Keitaro Bando Hano wrote The Incremental Value of Smart Buildings Upon Effective Rents and Transaction Prices (2018) as a master’s thesis.

For more information about the MIT Center for Real Estate’s research, please go to: https://mitcre.mit.edu/ or to the MIT REILab:  http://realestateinnovationlab.mit.edu/

 

NAIOP Event Showcases Three of Boston’s Top Developers

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This post comes from BLDUP (bldup.com) reporting on the NAIOP Massachusetts event on September 13, 2018: Development Unicorns: Neighborhood Game Changers.

Elisif_20180913_2045See photos from Development Unicorns: Neighborhood Game Changers. Credit: Elisif Brandon

The developers of three of Boston’s most changed neighborhoods, Fenway, Assembly Row, and Seaport Square came together last week for NAIOP’s panel discussion, Development Unicorns. If the catchy title didn’t grab your attention the insight provided by these forward-thinking developers certainly will. The event opened with a keynote from David P. Manfredi, Elkus Manfredi Architects, that highlighted the 8 Place Making Principles these neighborhoods have in common.  Mr. Manfredi also spoke about the important changes at work in each of these neighborhoods; public investment in infrastructure, skillful placemaking, flexibility and evolution along with density and walkability.  While the architecture of each area is different they all share these characteristics which have played a large role in the success of the projects.

After Mr. Manfredi’s introduction, the expert panel took the stage moderated by Sara Cassidy of AEW Capital Management.  Representing Federal Realty Investment Trust, the minds behind Assembly Row, was Donald Briggs, Executive VP of Development. Mr. Briggs mentioned that as a realty investment trust Federal Realty had the large balance sheet to a take risk on a piece of land in Somerville that had been tied up in a 6-year lawsuit.  He also discussed how the Assembly Row site is much closer to Boston than many people originally realized making it a great location for a development opportunity.

Steve Samuels, Chairman & Principal at Samuels & Associates discussed how his company “stumbled” into the Fenway neighborhood as it was being held hostage by Fenway Park.  His team had to convince people one use at a time to come to Fenway for something other than baseball. The final panelist was Yanni Tsipis, Senior VP-Seaport at WS Development.  WS has been involved in the Seaport since 2006 when it was just a wide open lot with great water views. Mr. Tsipis noted this blank slate provided an interesting opportunity for the development team and once momentum swung in their direction his team decided to triple down and buy out their remaining partners in the Seaport Square area.

The developers had their own story to tell on how the pieces of each neighborhood came together.  The Fenway, Mr. Samuels mentioned, was already a great neighborhood but it had no core. His team worked to build relationships with stakeholders in the area and then began to buy up lots one at a time.  They then rezoned each lot, again piece by piece, leading to a very slow process. Assembly Row also started off slow, as Federal Realty stepped into a deal that had been stalled with that 6-year lawsuit.  However, settling the lawsuit did have a positive outcome as Mr. Briggs pointed out, it pushed his team into embracing office space. Although not part of their original plans the offices turned out to be a very positive driver of growth.  In the Seaport it was very important for WS Development to ensure the area developed a sense of place very early on in the process. As Mr. Tsipis pointed out the neighborhood is still growing, with only about ⅓ of the planned construction now complete.

Other key points echoed across the panel were the importance of responsiveness to the market and also ensuring public realms and first floor retails spaces are unique and inviting to the neighborhood. Mr. Briggs suggested it is always prudent to entitle more square footage which allows for flexibility and optionality.  Federal Realty sacrificed density at the beginning of their project to build on a horizontal context and are now moving to build high rise projects. In the Fenway, The Samuels team had to find the right balance between old and new architecture.  Ultimately their goal for the area is to be ⅓ office, ⅓ residential, ⅓ retail but as Mr. Samuels quickly mentioned the market will drive these decisions.

In Seaport Square, WS has devoted time and energy to planning the public spaces and also programming around these areas as these events organically bring people together.  Mr. Briggs agreed, pointing out that he believes creating fabric in architecture, space between buildings is more important than buildings themselves.

When discussing retail spaces all agreed it was most important to get the first floor spaces right to command a premium above. With the continued success of these three neighborhoods, the insights from the panel were certainly valuable as the city’s development boom continues.

 

Developers take steps to reinvent suburban office parks

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The following article was written by Jay Fitzgerald and appeared in the July 27, 2014 edition of The Boston Globe:

When the exodus to the suburbs got underway more than a half-century ago, employers followed, and the office park was born. But today, as younger workers return to the city, and employers again follow the labor, these isolated campuses of low-slung buildings, parking lots, and company cafeterias face challenges, from new competitors to aging facilities to high vacancy rates.

As a result, owners and developers across Eastern Massachusetts are seeking to reinvent the suburban office park, taking a page from urban revitalization that transformed old mill and factory buildings into mixed-use developments of housing, retail, and office spaces. In communities such as Burlington and Marlborough, developers are adding restaurants, hotels, and other amenities, as well as housing, to compete with the “live, work, play” attraction of the city.

In Marlborough, for example, Atlantic Management Inc. of Framingham purchased the former Hewlett-Packard campus three years ago to launch a more than $200 million rehab of the 110-acre site, which dates back to the 1960s. The project is well underway, with Atlantic refurbishing the two office buildings, while AvalonBay Communities of Virginia, which purchased 26 acres at the site, builds 350 luxury apartments.

Atlantic Management also plans to develop a 153-room hotel and 50,000 square feet of retail and restaurant space that may one day include a farmers market. Already, this redevelopment of the Marlborough Hills office park has attracted a major corporate tenant, Quest Diagnostics of New Jersey, which plans to locate more than 1,000 lab workers there later this year.w

“The number-one challenge for many companies is how to attract talent,” said Joseph Zink, chief executive of Atlantic Management.“Companies need to attract talent and this is one way to do it. I think we’re going to see more of this in Massachusetts.”

Suburban office parks across the nation are trying to respond to tenants insisting on more amenities, said David Begelfer, chief executive of NAIOP Massachusetts, a real estate trade group. In Massachusetts, there’s no precise figure on how many office parks are undertaking renovations large and small, Begelfer said, but “it’s dozens of them and they’re easily spending billions of dollars.”

“The market is demanding it,” he said.

Commercial real estate specialists say the trend in office park redevelopment is driven by two forces. First, property owners need to renovate aging, outdated buildings, some of which are a half-century old. Second, they must meet increasing competition from Boston, Cambridge, and other nearby urban communities.

Along Interstate 495, the vacancy rate for Class A offices is hovering at nearly 18 percent, compared with 11.5 percent in Boston and less than 6 percent in Cambridge. Commercial rents are depressed. Offices lease for only $20 per square foot in the region, less than half of what similar space fetches in Boston and Cambridge, according to Jones Lang LaSalle, a commercial real estate firm.

The site of the former headquarters of data storage giant EMC Corp. in Hopkinton is an extreme case of a struggling suburban property. The 160,000-square-foot building, just off I-495, has sat empty for 13 years, ever since EMC moved to newer offices elsewhere in town, said Steven Zieff, a partner with Hopkinton’s Crossroads Redevelopment LLC.

Crossroads has an option to buy the 38-acre property, which also includes four one-story buildings, and hopes to redevelop the site into a mixed-use complex of housing, retail stores, restaurants, and office space.

“People are looking for something different,” said Zieff. “It’s the entire ‘live, work, play’ environment that people want. They don’t want to go to just an office park with a cafeteria and parking lots.”

Along Route 128, the situation is not nearly as dire, with the office vacancy rate between Woburn and Needham running at 6.4 percent, below Boston’s. Rents near that stretch of the highway are rising as the economy continues to improve, averaging about $34 per square foot, about $20 less than office space in Boston and Cambridge.

But office park owners still feel pressure from intensifying competition with cities. In recent years, a number of suburban companies have moved to Boston or Cambridge, including ad firm Allen & Gerritsen, which moved to the Seaport District from Watertown. Biogen Idec soon will move from a Weston office campus to a new headquarters under construction in Kendall Square.

At the 13-building New England Executive Park in Burlington, the vacancy rate is 10 percent, with tenants that include tech firms BAE Systems, Charles River Systems, and Black Duck Software. Still, National Development, the park’s owner, is convinced it needs improvements to stay competitive.

Later this year the firm plans to start a major overhaul that includes demolishing an office building — all 13 buildings were built between 1969 and 1986 — and constructing 300,000 square feet of new development. The new additions will include a 170-room hotel, three full-service restaurants, and new retail and office space.

“We’re seeing this great rush to the city [by tenants],” said Ted Tye, managing partner at the Newton-based National Development. “What that’s doing is forcing suburban properties to stay on their toes. And we’re responding to that.”

National Development, however, won’t add housing to its New England Executive Park mix. Tye said he’s not convinced that housing within office parks is a smart idea. Some towns might end up getting financially hurt because commercial and industrial properties are usually taxed at higher levels than residential properties, he said.

He added that it’s also hard to duplicate urban settings within suburban parks if they’re not near public transit and don’t have easy pedestrian access to offices. “This is a source of some disagreement within the industry,” he said of housing’s role in office park redevelopment.

In contrast, Nordblom Co., owner of Northwest Park in Burlington, is a firm believer in “live, work, play.” Three years ago, it launched a massive $500 million project to redevelop about half the 285-acre office park to include 600,000 square feet of retail space, 300 new apartments, a 225-room hotel, and 3.5 million square feet of new or refurbished offices.

Todd Fremont-Smith, senior vice president of Nordblom, said the redevelopment, which could take another 10 years to complete, has already attracted new office tenants, a steakhouse restaurant called The Bancroft, and a new Wegman’s supermarket, which opens in October.

“By mixing the uses, you have a more dynamic environment — and it’s more rentable,” Fremont-Smith said. “People are seeking urban-like amenities where they work. I think we’re going to see more of this at both office and industrial parks. People want it.”

View the original article here.

Boston Still Riding the Wave for Growth

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Although recent article in The Boston Globe, “Rents soaring in city’s Innovation District”, gives the impression that the Seaport is competing head-on with Back Bay, one needs to look closely at the two markets. The majority of the increases in rents from Class A, high-rise space are from existing properties in the Back Bay, while it is the newly constructed buildings in the Seaport that are contributing to its high rental rates.

Obviously, any tenant committing to newly built office space will be paying a premium to occupy the space, due to the high costs of land and construction.  More telling is the solid rental increases within the existing office building environment occurring in the Back Bay with renewals and new leases.

There is no question that the Innovation District is now on the map and is a credible locational choice for growing businesses.  However, the Back Bay is the established work/play/live neighborhood that will continue to be attractive to a full range of businesses. As time goes on, demand for space (and rents) will be more similar in those districts as well as in the “new” downtown market (formerly referred to as the Financial District).

The good news is that Boston is still riding a wave of growth and construction, setting it apart from most other CBD’s in the country.

New Construction for Greater Boston?

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At the recent NAIOP/SIOR Annual Market Forecast, there was talk about the possibilities of speculative commercial development in Boston.  There was a consensus that we will continue to see new construction in the suburbs, Cambridge and Boston due to falling CONSTRUCTION_BLOGvacancies, raising rents, building obsolescence, and limited blocks of space available for large users.

The key stumbling block is whether tenants will pay a premium price over the rents available with existing vacant spaces (especially in areas where rents have not grown as quickly, like Boston’s Financial district.) The new buildings will have the greatest challenges in holding down rents due to the rapid rise in construction costs (with Boston having one the highest union labor wages.)

It is said that “time is money”, so a possible solution is to accelerate the speed of construction. Take a look at the following YouTube video of a 30-story tall hotel built in 360 hours (complete with room furnishings!)