Why Waltham's Office Sector Is So Darn Hot
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Summers are usually slow in suburban property markets, but not this year in Waltham, says JLL managing director Tamie Thompson. This city, which is 11 minutes from downtown Boston, is on fire, she tells us. (Figuratively speaking... if it were literally on fire you probably wouldn't want to lease there.)
Waltham's Class-A office vacancy is 7.7%, the lowest since the prior peak in late ’07. Asking rents are rising into the $40s/SF, the highest since Q1 ’08. Existing tenants are growing and hiring, and flush VC firms are financing more leasing and expansions. New retail and multifamily projects are underway to support further office market growth. Last year, all the buzz was about Burlington; 2014 is Waltham’s year, says Tamie. She’s standing in front of Demoula’s redevelopment of a former Polaroid property (at 1265 Main St overlooking Rt 128) into 160k SF of retail/restaurants and 120k SF of office.
Yesterday, Intercontinental Real Estate went hard on its acquisition of Watermill Center from New Boston Fund for $57M ($272/SF), CFO and COO Paul Nasser tells us. This well-leased asset delivers an almost bond-like return; there’s upward pressure on rents and demand for more office space is coming from strong tenants that have solid balance sheets and are growing. Citywide, there are only three large blocks (at least 50k SF) available, Tamie tells us.
That’s why major landlords like Hobbs Brook Management, which has had office properties in town for decades, are demolishing the old to make way for the new. Hobbs Brook is building a $100M, 300k SF build-to-suit for Vistaprint that’s slated for completion in a year. For the graphic design and printing firm, its relo from Lexington to 275 Wyman St, gives it expansion space; and a LEED certified, efficient building designed for its business model and corporate culture.
With few big blocks of Class-A space, Waltham’s largest landlord, Boston Properties, demolished some of its old buildings in what it now calls CityPoint to build 230k SF. Wolverine Worldwide, the maker of shoe brands Stride Rite and Keds, is the anchor tenant taking 150k SF at 10 CityPoint. When Waltham is so close to Boston, why not follow the crowd downtown? A location like the one above is closer to homes of top corporate decision makers, offers lower rents, and easy access to the Mass Pike, Tamie explains.
Another draw for The Watch City, owners are adding more retail and restaurants to better compete with Burlington and other ‘burbs. Waltham landlords also want to offer the lifestyle sought by the young workers that companies are recruiting. On this site, Boston Properties is building space for two restaurants: Posto, which is expanding from Davis Square in Somerville, and for a store for national chain Bonefish Grill. Millennials may not need to work in downtown Boston if they can walk to good restaurants and shops from environmentally efficient new offices.
In Reservoir Woods, Davis Marcus’ sale of 850 Winter St drew one of the highest per SF prices recently when GI Partners paid nearly $73M ($401/SF) in June. The seven-year-old building is fully leased to quality tenants like anchor Alkermes. If a tenant does leave, the new one is likely to pay more. Waltham office rents have been on the rise for five consecutive quarters. In early 2012, GI and CalPERS formed TechCore to buy well-wired properties like this one that appeal to tech and life science tenants. So far, they’ve closed on 2.3M SF nationwide.
For a dead summer month, July was also good for sales. Taurus Investment Holdings paid $35.5M ($160/SF) for the Bear Hill portfolio (above): a mix of offices, lab, and R&D space. To expand their Rte 128 presence, Duffy Properties paid Maric $20M for 400 Fifth Ave. Investors appreciate that Waltham is an established location where nationally recognized owners have had assets since the ‘60s.