Why Boston Will Sustain Its Strength
Everyone wants to be in Boston: Millennials, their employers, retailers, developers and investors, all sustaining the strongest growth in recent memory. But no growth is without problems, according to the speakers at our Boston State of the Market event: the squeeze is on middle-income renters, land is expensive and suburban locations are scrambling to stay relevant.
Our multifamily speakers said the state of multifamily is good, and the numbers bear that out. Greater Boston added 60,000 jobs over the last year, a 2.3% growth rate, which would be the envy of many places. About 6,800 new apartments were added over the same period, yet vacancy remains low, about 4%. Effective rents are growing at 6%, which can't happen forever, but even so it's a strong market.
Our speakers also noted the apartments have stickiness. Is it worth moving just to save a hundred dollars a month, especially if you like where you live? Even so, there are opportunities to develop in lower-cost places, to capture renters who want to pay less, such as in East Boston, Dorchester or Somerville—provided the building's near transit.
Snapped: Trans National Properties & KIG Advisors president Justin Krebs and the Collaborative Cos managing director Sue Hawkes.
Investors are eager to be in Boston multifamily as well. Even if rental growth slows to 3%, capital will want to be here, since 3% is great, compared with a lot of other assets. Millennials are supporting the market, and there's room to build. One challenge is that the price of core-market land supports luxury development, and public programs support affordable development, but there isn't much support for the middle.
In new development, units are compressing, giving over that space to amenities. Renters don't seem to mind. In fact, they want those amenities, provided the property's in a good location. And the prime ingredient for a good location is transit, followed by a neighborhood that's distinctive. That poses a challenge to older suburban properties.
Here are CohnReznick partner Fred Copeman, who moderated the multifamily panel, Marcus & Millichap regional manager Tim Thompson and Leggat McCall co-president Mahmood Malihi.
Our Seaport Update speakers started by asking, is Seaport now a neighborhood? Not yet, they said—there are too many holes. But it's starting to emerge as a genuine Boston neighborhood, and it will get there over the next three to five years. There's still 17M SF of anticipated development in the Seaport, so there's fertile ground for change.
Mixed-use development is key to the Seaport vision, the speakers stressed. Some of the missing retail components will come as more mixed-use development is completed, and population reaches a critical mass, like higher-end grocers and other retailers.
Pictured: Stantec VP Fred Kramer, Cottonwood Management principal Rebecca Mattson and Morgan, Lewis & Bockius partner Richard Toelke, who moderated the Seaport panel.
Our workplace panelists noted that while density is good, and open space is good, there are limits. It can be hard to work, think, write or communicate with someone right next to you, so flexibility is important. There need to be some places where workers can be apart from other workers, at least for a time, and office space design flexible enough to accommodate that.
Amenities are still critically important to tenants, because they're important to the talent they're trying to attract. New office space is seeing more stalls in restrooms, greater ceiling heights, tenant-only gyms, bike parking, Zipcar space, outdoor and rooftop space, and more.
Here are The Druker Co president Ron Druker and VTS regional director Matt Giffune.
Sustainability is a factor in attracting tenants, the speakers said, but the difference between Silver and Platinum isn't necessarily something tenants want to pay for. LEED space does, however, tend to enjoy higher tenant satisfaction and renewals, since it represents a better work environment at a lower operating cost.
Location is still king of the hill when it comes to site selection—a building needs to be in the right place. (Back Bay was cited as one example.) The greenest building in the world isn't very attractive if people don't like its location.
Snapped: Bentall Kennedy EVP Doug Poutasse and Goulston & Storrs director Jason Dunn, who moderated the workplace panel.
Millennium Partners Boston principal Anthony Pangaro, who keynoted the event, stressed the importance of publicly planned infrastructure to CRE, even if the industry doesn't always appreciate it. For example, early 20th century work such as the Downtown subway tunnels, the damming of the Charles River and the creation of the Quabbin Reservoir enabled growth Downtown 100 years ago, just as more recent projects, such as the depression of the Central Artery, enable modern developers to build larger projects Downtown.
Planning is often seen with disdain. "We, as developers, would like to see anything goes," Anthony said. "That's backwards. Planning sets the stage for development. Without planning for transit, for instance, we couldn't build all of the apartments that we've built Downtown." Developers might not be the best planners, but they're builders and problem-solvers, and need to help government do good planning and infrastructure planning, he added.