National Retailers Want In On Boston's Shopping Districts, Driving Up Rents
Boston's shopping districts might not have the historical cachet of Fifth Avenue or Rodeo Drive, but they are starting to attract the same type of retailers that might have previously overlooked the city.
Newbury Street and the Seaport have seen tenants duke it out for dwindling vacancy as Boston's booming life sciences and education sectors bring in more shoppers and feet on the street.
Even as red-hot inflation hangs over the retail sector — along with the Federal Reserve's efforts to cool the economy and the industry bracing for a recession — Boston retail experts say that the city is well-positioned for long-term growth.
“Newbury and the Seaport, in particular, had some of the fastest foot traffic recovery in the country because people live here, work here and there’s a lot of things to do,” JLL Head of Americas Research Strategy Julia Georgules said at Bisnow’s Boston State of the Market event last month. “Rents have grown 6% year-over-year.”
In Greater Boston, retail vacancy has been below 3% every year since 2015 except for 2020, but construction has nevertheless been on a steady decline since 2017, according to Lee & Associates Boston's Q3 Retail Market Overview. The shrinking available inventory has pushed rents back up near their pre-pandemic level as tenants scramble for limited space.
Bialow Real Estate CEO Corey Bialow said on Newbury between Arlington and Berkeley, the "Luxury Row" strip where brands like Rolex, Patek Phillipe and the Boston Diamond Co. have opened or announced new stores in the last year, rents have reached as high as $300 per SF.
Even on less upscale blocks, Bialow said many landlords who saw small-business tenants close down during the pandemic have sought out more national brands with better credit that would be less likely to walk away from a lease.
“We’re seeing landlords becoming a little more particular about who they’re looking to put in their buildings,” Bialow said.
In the Seaport, Bialow has multiple clients in the "eatertainment" space that have flocked to the neighborhood to open brick-and-mortar locations, including Puttshack, which opened its 26K SF location Oct. 19 on Pier 4 Boulevard, and the 125K SF Superette concept a block away. The Museum of Ice Cream is also on the prowl for space in the city.
Bialow said that these concepts that you would normally only see in New York, Miami or Las Vegas are now popping up in Boston.
“Since the success of the Seaport and the volumes that we’ve seen by some of the larger restaurants and the success they’ve had there, it’s really helped us attract top-tier restaurant names that would have otherwise looked at Boston as too small of a market,” Bialow said.
Retail experts said the Seaport and Newbury Street aren't competing for tenants — a handful of retailers have opened locations in both submarkets and seen success.
Faherty Brand, a New York-based apparel store, opened its first Boston location on Newbury Street five years ago and expanded to a bigger space next door during the pandemic.
Anne Greene, operations lead at Faherty, told Bisnow that the company's owners, brothers Alex and Mike Faherty, plan to expand the store's presence with over 50 stores by 2023, including a location in the Seaport.
CBRE Senior Vice President Greg Covey said that although Boston isn't quite on the same level as bigger cities like New York or Los Angeles in terms of rent or population, Boston can be more manageable for international retailers looking to expand into the U.S.
“Boston has shown itself to be in any retailer's international growth conversation,” Covey said. “I think it is a market that continues to perform well. It has high income, high education levels and continues to become more diverse with people from other cities.”
The Seaport has become one of the most coveted life sciences clusters in the country and is home to big biotech companies such as CRISPR Therapeutics, which opened its 263K SF U.S. headquarters last month, and Eli Lilly, which is partnering with Alexandria Real Estate Equities to develop a 334K SF RNA facility that is planned to open in 2024.
“Certainly, it seems the economy here is going very well, buffered by things like life sciences, where you actually need to be physically present, education and finance,” Covey said.
Unlike the Seaport, which has millions of square feet in the construction pipeline, including development still in the works for the over 7.6M SF Seaport Square, Newbury Street has seen almost no new development, Bialow said.
The competition for available space has gotten contentious.
The street has one new project: 149-155 Newbury St., where developer L3 Capital broke ground in February on a building with 16K SF of retail space on its first two levels below 27K SF of offices. Last week, the developer was sued by Los Angeles-based yoga apparel chain Alo Yoga for allegedly backing out of its lease agreement, the Boston Business Journal reported.
Alo claims L3 reneged on the deal because it wanted to find a tenant willing to pay more for the space on the corner of Dartmouth Street. Newbury Street was at the center of its expansion strategy in the market, it said in the suit, considering the location to be “the best corner in the Back Bay.”
But while competition among tenants is fierce now, fueling faster-than-expected rent growth this year, most experts Bisnow spoke to don't expect it to last for long.
"I think given how quickly it sped up, it has to trail off," Covey said.
“We would have had a nice run to make up for all the downtime during Covid and BLM and all that everything that came with it — because if you recall, half of Newbury was boarded up,” Newmark Managing Director Ted Chryssicas said. “Now, we're going to have the rug pulled out from underneath us because of the [macroeconomic conditions].”
Chryssicas said some barriers to entry, like high construction costs that could drop and liquor licenses that might become more readily available, could keep some of the momentum going while the economy slows down.
Newmark Senior Managing Director Pat Paladino said that although construction costs are rising and a slowdown is "inevitable," Boston is still a desirable area and will still garner interest from tenants and developers.
“It's Boston,” Paladino said. “It's competitive, and it's gonna cost a few bucks more to get in and get open. That's better for us, and that keeps up competition.”
CORRECTION, NOV. 2, 10:25 A.M. ET: Greg Covey is a senior vice president at CBRE. A previous version of this article misstated his title. The story has been updated.