‘Disciplined’ Suburban Market Rolls On

BOSTON — Cassidy Turley principal Brian Hines has been covering suburban Boston for more than 30 years, and that magic number that often instills predictability and responsibility among people appears to have rubbed off on the regional office market, which for most of the CRE expert’s tenure has been defined by cataclysmic shifts, moving from recession to recovery back and forth endlessly since the early 1980s. Cassidy Turley’s third quarter report shows landlords gaining the upper hand after being at the beck and call of tenants since the 2008 bust, with a 21.0 percent availability rate the lowest in 19 quarters and net absorption up 1.8 million sf YOY, yet Hines says the raging industry of yore is easing into a more placid stream thanks to both sides of the pendulum learning from past mistakes. “This is by far the most disciplined environment I have seen in 30 years,” Hines says in maintaining that even as “methodical expansions” by major companies over the past 18 months have crimped inventory along Route 128 and other top communities, there is unlikely to be a sudden surge of speculative construction thanks to a range of reasons. “The suburbs are telling a great story right now,” says Hines. “It used to be things were either hot or cold, but the attitude is much different this time around, and it’s not just the current moment—I think this is a structural change that is here to stay.” One thing likely to keep suburban construction in check, according to Hines, is that many sites are being gobbled up for alternative uses, including multifamily and retail. Not that there is anything wrong with that, he stresses, citing the eagerly anticipated completion of a new shopping center under construction at 1265 Main St., the former campus of Polaroid that had been slated for new office product until Sam Park & Co. secured the site. The Burlington Mall, Wayside Commons and now Third Street at Northwest Park anchored by a Wegman’s are reasons Burlington has closed the gap with Waltham’s rental rate, Hines estimates. “It is definitely shrinking,” he says. Cassidy Turley survey has Burlington at $27.14 per sf today, while Burlington is at $28.55 per sf. A year ago, the Burlington average was $24.47 per sf and Waltham was at $27.75 per sf. For best-in-class addresses, Hines puts the Burlington/Waltham delta at $3 to $5 per sf versus $5 to $10 per sf just a few years prior. Select deals are above $40 per sf, while Burlington is in the high $30’s per sf on the upper end. Whatever the trend, Hines says Waltham has righted its ship that saw vacancies surge in 2008, with the city thus far in 2013 posting 250,000 sf positive net absorption for 9.45 million sf. That is nearly 20 percent of the entire suburban 2013 absorption of 1.3 million sf for its 79.7 million sf reviewed by Cassidy Turley in the Q3 report. Boston Properties did a “fantastic” job reinventing Bay Colony Office Park, the city’s former crown jewel dulled by several ownership changes that culminated in its foreclosure before being taken on by the Boston-based REIT which paid $185 million and then undertook a vigorous capital improvements campaign. That has brought several “dynamic” companies to the park, he reports, with new tenants joining Bay Colony’s roster since 2012 alone including AMAG, Fleetmatics, Nickerson PR and Verivo Software. Those commitments account for nearly 100,000 sf and have helped occupancy rise above 70 percent compared to 62 percent upon acquisition of the 980,000 sf park in Jan. 2011 for $185 million. One option for tenants would be to head outward towards Interstate 495, and Cassidy Turley research does show improvements throughout that beltway, including 355,000 sf of positive net absorption for I-495 North market that has 11.2 million sf and now is at 16.4 percent availability. Thanks to 450,000 sf of positive net absorption YTD, I-495 West has dropped its availability level from a frightening 40.4 percent to start 2013 down to 35.1 percent for its 8.8 million sf. I-495 South’s 1.4 million is on the plus side by 25,500 sf, its availability down to 17.8 percent. Cost matters could be one factor, says Hines, but he maintains the demand for talent in the life sciences and IT fields that make up a large measure of the suburban tenant base cannot stray too far from the Live/Work/Play areas most want to reside. And while 1265 Main St. and the Marketplace at Lynnfield lifestyle center underway in Route 128 North should bolster local office activity, according to Hines, he says the pattern is stunting development of new office product, making tenants with six-figure requirements especially constricted (see story, page 6). “If you are looking for a large block of space right now, you are in for a real adventure” relays Hines, who thinks build-to-suits are a potential option but anticipates higher rents will need to garner recognition. That itself, he offers, should be considered reflective of an improved economy, whose own measured rebound mimics the suburban real estate rebound that Hines calls “a recover without a personality.” It is steadily improving, but the pace is deliberate and kind of plodding along,” says Hines, who views that situation as “all very positive” for both sides. “We are definitely moving in the right direction,” he says.