Perry’s “Node” Report: Transit CRE Growing at Record PaceMay 10, 2017 - By Joe Clements
BOSTON—Arriving just in time for next week’s christening of the developer-funded commuter rail station at Brighton’s Boston Landing comes a fresh study from Perry Brokerage Associates concluding that rapid transit has become “a key ingredient” for CRE growth in the life sciences and office sectors. The “Node” review compiled by PBA research chief Brendan J. Carroll and released yesterday to a select audience shows record absorption and construction levels within a 10-minute walk of such transportation, its sampling covering 96 million sf in areas deemed “accessible” and 132 million sf located outside that 10-minute radius, areas including Route 128 and Interstate 495 assets.
“It shows a pretty clear correlation between public transportation and commercial real estate growth that has been taking hold the past 10 years,” Carroll says upon issuance of the latest installment of PBA’s “Spectrum” series of market reports covering various facets of CRE regionally. The transit study, a copy of which was provided in advance of a general release to therealreporter.com, calculates tenants absorbing four million sf of lab and office product over the past four quarters in “accessible” areas, the most ever during a 12-month period for that sector and accounting for 74 percent of all lab and office absorption in metropolitan Boston.
Absorption for accessible properties has reached 13.2 million sf over the past 22 quarters—aka 5.5 years—more than twice the amount leased at other lab and office assets, Node reveals, and during the past 20 quarters vacancy has averaged 9.6 percent in accessible areas versus 14.3 percent in non-accessible venues, with the Q1 2017 figure at 13.0 percent for the latter space compared to 6.9 percent in accessible buildings, that number slipping from 8.0 percent in Q1 2016 in the wake of the robust absorption pace. Rents in accessible buildings average $53.39 per sf for first class space, a 1.8 percent YOY gain.
As to new construction levels, completions of 9.6 million sf since mid-year 2010 has expanded accessible inventory by 10 percent, a four-fold increase over non-accessible inventory. Another 2.8 million sf of accessible construction is in the pipeline, relays Carroll, whose review does not include commuter rail transit with the idea that the main catalyst speeding up accessible adulation is young millennials whose mien requires the rail be more frequent and at later hours than found on a typical commuter line.
Carroll maintains that developers are responding directly by tailoring projects to that influence along existing rail lines and have found plenty of takers such as Partners Healthcare, which Node points out recently moved into 850,000 sf at the freshly minted Yard 21 mixed-use complex in Somerville created by Federal Realty Investment Trust, the project’s linchpin an Orange Line station between Sullivan and Wellington Stations opening up the area to hundreds of millions of dollars in improvements.
The $20 million Boston Landing endeavor funded by project developer and occupant New Balance is another example of an infill location on an existing rail line opening a station, says Carroll, but he adds efforts such as the MBTA Green Line extension into virgin transit territory—a proposed venture that has been proceeding at a snail’s pace—could be aided by “clear” data he maintains “shows this is the wave of the future” and he says the construction imbalance indicates it is being recognized as such among developers and funding sources.
“Transit access is a key ingredient to doing a viable project today if you hope to attract the type of tenant that does not want to miss out on a valuable employee who finds rapid transit an important aspect of their lifestyle,” he says. “If you do not have that, it can be more difficult to compete.”
Carroll does acknowledge there are plenty of landlords thriving despite being beyond the 10-minute arc. Out in Waltham, Boston Properties has turned around Bay Colony Corporate Center dramatically, he notes, and the sponsors of 1265 Main St. attracted Clarks Shoes to an office lease at the mixed-use site off Route 128.
CrossPoint in Lowell even won the 2016 Commercial Brokers Association Award for top suburban lease involving the relocation of Kronos into 505,000 sf despite the property not being in the accessible zone defined in Node, that deal brokered by Cushman & Wakefield and CBRE/NE.
There are companies who prefer a campus setting, Carroll explains, including more mature companies whose employee base is in the suburbs, and he notes record rents are being achieved in top suburban communities featuring LWP elements such as Burlington which seek to be all inclusive and have expanded amenities such as Nordblom Co. at Third Avenue. Savvy sponsors are finding creative solutions to set themselves apart from the pack, he observes.
Even so, PBA’s Director of Intelligence says he believes Node maps out how leasing and expansion activity is being fundamentally shifted to reflect a populace embracing a non-automobile existence, or at least limited dependence. “It is the wave of the future,” says Carroll. One developer spoken to by Real Reporter recently on a separate matter had explained a site controlled along the Green Line extension route is optimistically seen as benefitting down the road, as it were, but the owner explains until it is evident the transit project is a reality, the strategy is to keep the lot unimproved.
“It looks more hopeful than ever . . . but we are not quite there yet,” says the unnamed developer who is active in Greater Boston and deems the extension “critical” to a concept loosely calling for a multifamily mid-rise project with possible ground-floor retail on the site which the source declined to identify and requested anonymity.
Other topics covered in PBA’s newest Node report include capacity issues along the MBTA Red Line, which is considered the busiest and most important route for life sciences and technology firms; Amtrak’s plans to expand Acela in the Northeast corridor by 2021; and a deep drill down on the growing debate regarding a North-South Rail Link, with Node looking at historic reasons for the gap, who the chief proponents/obstacles are for the $2 billion solution; and what its impact could be on CRE development long-range. READ THE FULL NODE REPORT HEREBrendan Carroll Boston Landing Rendering