Boston's Suburban Developers Enjoying A Paradigm Shift In Demand For Office, Housing
Renters have traditionally moved to Boston’s suburbs because they were forced to in order to find cost savings. Developers now believe tenants are proactively seeking space outside the urban core.
Average one-bedroom rents of approximately $2K in Boston remain among the nation’s highest despite a double-digit decline last year. Renters, spurred by remote work offerings, are moving into surrounding cities within a 30-minute drive of downtown, where new housing developments and growing employer clusters are making suburban living a more attractive prospect.
“We’re getting a lot of people out of Cambridge, out of Boston, that have decided they like a walkable community like Salem or Lawrence or Lowell,” DSF Group Chief Investment Officer and President Josh Solomon said during Bisnow’s Rise & Shine: The Future of Boston’s 128 and I-495 Corridor event Wednesday. “Yes, it’s a bit of a discount to the downtown urban core. We’re getting a mix of those folks moving out as well as a lot of people who sold their homes who want apartment living.”
Boston’s apartment complexes have struggled to retain renters, with some of the city’s swankiest apartments offering multiple free months of rent, deals that may stick around longer than the coronavirus pandemic. The city also has the highest number of apartment properties with CMBS loans at less than 80% occupied.
Boston’s single-family housing market has tightened significantly, and homeowners who are making off with bigger-than-expected sales want to stay in the communities they’re used to and where their social network remains, Solomon said. Boston suburbs with populations between 80,000 and 110,000 like Lawrence and Lowell can provide average one-bedroom rent savings of hundreds of dollars compared to the urban core, according to Zumper research. The communities sit along Interstate 495, 30 miles north of downtown Boston.
“I think these suburban beltway developments cannot be thought about anymore as 5-to-9 housing locations," Cube 3 founding partner and architect Brian O’Connor said, referring to the notion that bedroom communities shut down early. “These are 24-hour places. We see that happening literally every day with the choices people are making.”
Developers hoping to cash in on the suburban trend can work with communities that receive grants from state programs including MassWorks, an infrastructure program that awarded $68M to 36 statewide projects that helped create more than 3,500 new housing units, nearly a third of which are affordable. MassDevelopment also regularly awards grants to spur housing development, just last week issuing a $10.5M tax-exempt bond for a 22-unit housing development in Beverly.
Multifamily developers also lauded cities that work with them on master planning. Lupoli Cos. recently received approval in Lawrence for a second master plan at its Riverwalk Lofts complex, which will deliver 338 new loft apartments this year. The approval opens 625K SF of mixed-use development, Lupoli Cos. Senior Vice President of Real Estate Gerry-Lynn Darcy said.
“I think gateway cities like Lawrence embrace that because they need the guidance,” Darcy said.
Suburban office developers are also absorbing tenants, seeing growth and relocation by employers despite a few downsizings and moves into the city. The B2B data compiling firm ZoomInfo last month executed an office swap with a neighboring Waltham company to move into a larger space, while tech giant IBM leased 151K SF in Lowell in a relocation from a 490K SF campus in Littleton, 15 miles south on Interstate 495.
The scorching life sciences market has also driven tenants to look outside of the tight Kendall Square epicenter, where office rents can reach as high as $135 per SF. The supply crunch has driven even the largest industry developers to get creative in conversion plays and construction pivots that now account for millions of SF.
Suburban developers can offer proximity to the growing biomanufacturing presence in Greater Boston’s outskirts, larger, cheaper space and less traffic, Hobbs Brook Real Estate CEO Sam Schaefer said. His firm is building a 500K SF complex at 225 Wyman, a project that will offer a mix of life sciences and office space, a pivot undertaken during the pandemic.
Multifamily developers responding to the influx of suburban residents said they still desire easier working relationships with municipalities. They claim taxes and affordability requirements continue to rise across the metro, forcing them to charge higher rents.
“Developers don’t want to make the projects cheaper or make them less enticing, less innovative or less design-focused to accommodate that,” O’Connor said. “Because then you’re taking away overall global desirability for the project.”
The excess of space in the suburbs can allow developers to get creative in budgeting, such as building out surface parking, an impossible task in the city. Solomon called on urban developers to think outside the box.
“I think this would be the opportunity, when it is really difficult to pencil out urban development, to maybe get some of these developers who have focused downtown to work in partnership with local and state governments in figuring out how to do that,” he said.