Will 2014 Be a 2013 Replay?
2013 was a record year for investors, but economic stagnation threatens. Here's how Suffolk Construction CEO John Fish wants to avoid it. (The crowd must've been motivated, as they cleared out before we even took this pic.)
Keynoting at Colliers 35th annual Real Estate Trends Seminar Thursday night, John offered these takeaways to the ebulliently positive crowd of 1,000 at the BCEC: Consider big, long-term investments for the community; think about the billions in infrastructure investment needed to sustain growth during the next trough; and distribute the benefits of economic growth beyond Boston to the entire state. Our economic engine isn’t bullet-proof and has to be in better shape to absorb the down cycles. Housing is unaffordable for many; the roads need billions in repairs; and the MBTA carries an unsustainable debt. We must grow or die, John says, and we can’t grow without modern transportation systems.
Colliers Boston co-chairman Tom Hynes agrees that Boston needs to invest in transportation but stressed the positive short-term and long-term real estate trends: population growth in Boston for the first time in decades; the wave of start-up companies leasing space and being spawned by the region’s healthcare/education/science economic bedrock; and the big suburban, mixed-use redevelopment projects underway and poised to start. Much of this expansion comes on the heels of the prior $25B infrastructure investment in the Big Dig, the Boston Harbor clean up, and capital improvements at Logan.
Co-chair Kevin Phelan (here with ULI executive director Sarah Barnet) says 2013 was the best year his capital markets team has ever had (including deals for New Balance world HQ and the Ink Block South End). Money is bountiful and lenders are more aggressive in their underwriting; insurance companies are extending 75% LTV and banks 70%, but some other lenders are offering debt up to 90% of the capital stack at blended rates of 7% to 9% without requesting equity. Route 495 is coming back with companies like Quest Diagnostics and TJX taking space in Marlborough, but the revival has to gain strength for the region to thrive.
2013 investment sales hit a hit a six-year high of $6.7B, up 50% year over year, says partner Lisa Campoli (left, with Beetlerock Property Advisors' Katherine Rowley). The big winner: the 'burbs, with $2.6B in sales compared to $1.1B in ’12. Institutional investors lit the fire downtown with deals like Shorenstein’s purchase of Center Plaza for $420/SF and TIAA-CREF’s acquisition of 51 Sleeper St for $399/SF. The Boston office market—after 11 consecutive quarters of net positive absorption—is approaching the 10% equilibrium point, adds Colliers Boston prez Ron Perry. Among the game-changing leases: Converse' relo from Andover to North Station; Arnold at the former Filene’s; and Vertex, PwC, and State Street taking build-to-suits at the Seaport.
In Cambridge—“the best submarket in America,” according to partner Joe Flaherty (center with Alexandria’s Joe McGuire and Tom Andrews)—some stats like the 19.5% vacancy in the life science labs don’t tell the whole story. (We could've told you scientists were bad at storytelling. Ever tried to read the American Journal of Science?) The high availability reflects the relo of Vertex, leaving 562k SF, and the consolidation of Pfizer, which is shedding 120k SF. But leasing demand is strong, with transaction velocity of 1.2M SF in this 8.7M SF market. In Kendall Square, office vacancy is 1.8% and rents for Class-A and -B space are up 10% compared to ’12.