Suburbs Face New Competitors
With rising office rents, sale prices reaching historic highs, and residents clamoring for new multifamily, some Boston's 'burbs have hit their stride. That's why we're excited to hold our first-ever Boston Future of the Suburbs event on Sept. 10 at Granite Links in Quincy.
But will uneven economic growth and stiff competition from downtown Boston hinder this trend? (Who doesn't like a nice friendly rivalry?) Campanelli partner and principal for acquisitions Steve Murphy, who's speaking at our event, predicts the suburban rent increases will continue for the near future. It reflects real economic growth, he says: Massachusetts, perennially drained of population, gained 130,000 residents from 2010 to 2013. Unlike the dot-com tenants of 15 years ago, new companies are generating revenue and can afford to lease more space. But they’re still cost conscious and want amenities that will attract talent.
With office stock that’s 25 to 30 years old, some developers are taking on the challenge of giving existing buildings a face lift. The days of marble are behind us, says Steve, whose firm acquired 1M SF since mid 2013. These include value-add plays from outer-urban core markets like Quincy, to suburbs like Westborough and Acton. Tenants priced out of the Seaport and Route 128 are finding value rents and some have amenities like 24/7 cafes and nap rooms a la Heritage Landing (above). Working ‘til 9pm? No worries: Use your key fob, take a fresh salad, and pay on the honor system.
At the 500k SF Burlington Corporate Center, which The Davis Cos bought for $225/SF in ’13, leasing is brisk and rents are above pro formas written a year ago, says managing director of acquisitions Quentin Reynolds, who's also speaking at our event. Class-A market fundamentals are so strong now that cap rates are down, and owners who come in at a high basis are pushing up rents further. But is this growth sustainable as old patterns give way? It used to be that companies would start in Cambridge, grow, and move to the western suburbs, he says. Now they look at the Seaport, the CBD, and shop elsewhere. Suburban buildings with a dynamic amenity base and a sense of place should be out performers.
On the multifamily side, Class-A suburban assets are trading at 4.75% caps compared to 5.25% a year ago, says Boston Realty Advisors partner Chris Sower, who leads his firm's multifamily investment sales and whom we've also tapped to speak at the event. Despite transaction volume being much lower than the last peak, equity investors who can’t pay for downtown core returns are seeking suburban property close to transit. Recently, Criterion sold Riverbend on the Charles in Watertown for $66M—that's $390k/unit at an approximately 4.75% cap.
CC&F CEO Jay Doherty (right, with project manager Caleb Manchester), who's another speaker, tells us there's particular pockets of multifamily strength in the 'burbs. The market’s on fire in Cambridge and prospects are strong in Quincy, both of which are on the Red Line. In Newton, CC&F and a partner are permitting a 334-apartment development on Wells Avenue. While the economy is exceptionally strong, growth isn’t spread across all markets equally. In southern suburbs, rents and development are lagging, Jay says. For balanced growth in the long term, we need more housing and transportation, he says.
In Cambridge, CC&F is development manager for developer/owner O’Connor Capital Partners’s 428-apartment Atmark near the Alewife T-stop. The ground floor theater (above) is one of many amenities. Leasing and rents are so strong that O'Connor has placed the two-building complex (on the site of a former warehouse in what was once an industrial neighborhood) on the market even as lease-up is being completed, Jay says. In June, CC&F also started construction on 180 apartment units near the Quincy Adams T-stop in a JV with Boston Andes.
It’s possible to have an urban area that’s not in a city, says Noannet Gp founder Jordan Warshaw, another speaker. Take Wellesley: It's a bona fide suburb, but Wellesley Square is a real town center lined with retail and restaurants. It has an urban vibe and the town also has the big lawns and good schools of the 'burbs. Jordan's spent most of his career developing in cities; for his first ground up suburban development, he and partners Abbey Road Advisors and ELV Associates are building the Belclare on Washington Street across the street from Ming Tsai’s Blue Ginger. Of the 25 market-rate condos priced from $1.4M to $3.5M, 90% are sold. Want to hear even more? Register now our event, which also includes great networking and a keynote from Quincy Mayor Thomas Koch.