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Bargain Buys And Millennial Migration Finally Give Boston’s Burbs Their CRE Moment

Historic price discrepancies give Boston’s suburbs some of the best commercial real estate values in the region, but companies have shied away. Demographic shifts may finally change that. 

GE Healthcare's headquarters in Marlborough

“The draw of the city of Boston today is unparalleled in its history, which is saying something for a city around since the 1600s,” Colliers International Director of Research Aaron Jodka said. “The Boroughs are a potential opportunity for investors to buy assets, which are selling at a steep discount, differentiate that product and have a chance to lure the current millennials who are aging and looking to get out of the city.”

Corporate urbanization has been particularly beneficial to Boston. The city has lured General Electric, Reebok and PTC, among others, from suburban locations throughout New England to its Innovation District.

While it might seem like Boston’s surrounding municipalities are sitting ducks waiting to get their corporate citizens poached, some stress these areas offer benefits at a time when space is increasingly sparse and costly in the central business district.

“You can get triple the space in the Boroughs for the cost of something in Boston,” Jodka said. 

Prices in the Boroughs — Marlborough, Northborough, Southborough and Westborough — have remained the same for nearly 20 years, according to Jodka’s “How The West Was Won: 495 2.0” report. The municipalities were desirable office submarkets during the dot-com boom, but vacancies have been high and rents low in the wake of the bubble bursting, even as other parts of Greater Boston have flourished.

Rendering of 121 Seaport in Boston's Seaport District

Rents have always been lower in the suburbs than in Boston’s core, but there is a particular discrepancy between the city and the Boroughs.

The city was 43% more expensive than the Boroughs from the late 1990s to the mid-2000s, according to the report. The difference rose to 59% from the mid-2000s to 2011. The Boroughs are 70% cheaper than Boston today, which Jodka said is prime for companies looking for a Boston presence.

“These are not the hinterlands,” he said. “This is still in close proximity to one of the biggest job centers in the country.”

Companies are beginning to realize the value to that proximity. TJX Cos., Whole Foods and GE Healthcare Life Sciences have all opened sizable offices in Marlborough. TJX declined to comment for this story, and Whole Foods did not respond to requests for an interview. 

“[Marlborough’s] proximity to leading research hospitals and colleges and universities that offer post-graduate degrees in the life sciences is invaluable,” GE Healthcare Life Sciences Commercial Operations Leader Tony Kotarski said in the Borough report. “When GE made the decision to establish their [Healthcare Life Sciences] headquarters up here, they did it because this is one of the premier life sciences clusters in the world.”

The Boston-Boroughs historic sales price discrepancy

These offices, especially Whole Foods moving its regional headquarters to Marlborough from Cambridge, are a departure from the typical urban office migration, and it could become a regular pattern. Suburban developers have consistently maintained millennials would eventually move to the suburbs, and it appears the oldest millennials are doing just that. 

Northborough, Southborough and Westborough saw their collective 20- to 34-year-old population increase by 27% from 2010 to 2016, according to the report. The millennial population only grew by 7% in Massachusetts overall in the same period. While it might be too early to say there is going to be a millennial mass exodus to the suburbs, some argue demographic shifts are priming the smaller cities for new residents.

“I think some companies are realizing they don’t need to go downtown, and they can pull people, especially older millennials, to the suburbs,” Rubenstein Partners New England Regional Director Deke Shultze said. 

Boston hit its peak millennial population in 2016. The oldest part of the generation is on track for other significant life events, with average first-time marriage, birth and homeownership in Massachusetts all coming in one’s late 20s and early 30s, according to the U.S. Census Bureau.

Marlborough Hills, home to Whole Foods' North Atlantic regional headquarters

“Put it all together, and it’s a recipe for an increase in the homeownership rate and, through that, more suburban millennials,” CoStar Market Economist Mark Hickey said. 

This is not to say all companies are going to abandon their city real estate strategies and return to an era of suburban office campuses. Some argue urbanization is not so one-sided, and congestion, coupled with potential millennial migration to the suburbs, could lead to a dual-location strategy.

Companies like Microsoft, Shire Pharmaceuticals and Red Hat all maintain suburban offices along with their presence in Boston’s urban core.

“Urbanization is definitely a real thing that needs to be understood, and there are certain companies that need a presence in Boston to attain and retain talent,” Schultze said. “But this idea of you have to be in Boston or you’re toast, I don’t think that’s the case.”