With more than 70 development projects underway in 2015 and 2016, Boston’s urban commercial center is growing its skyline, making it one of the largest building booms in the city’s history. Home to some of the world’s leading institutions of higher education, medicine and innovation, it should come as no surprise that Boston is ranked as one of America’s smartest and most innovative cities. With an estimated population of almost 700,000, Boston is the largest city in New England. While this may seem small, the city is the anchor of a substantially larger metropolitan area called Greater
Boston, home to 4.7 million people and the tenth largest metropolitan area in the country. Rich in American history from the Revolutionary War, including the Battle of Bunker Hill, the Boston Massacre and the Boston Tea Party, Boston has a robust tourism sector, with over 20 million annual visitors to Faneuil Hall alone. World-class cultural offerings such as the Boston Museum of Fine Arts and the Boston Symphony Orchestra (one of the nation’s Big Five) combined with the city’s literary culture make Boston one of the country’s intellectual capitals. The giants of American literature from Emerson and Thoreau to Hawthorne and Longfellow all drew inspiration from the city, and the Boston Public Library was the first free library in the United States.
The Boston Economy
Small start-ups, mid-size growth firms and large corporations all want to be near top talent in Boston. TripAdvisor, Constant Contact, HubSpot and e-commerce giant Wayfair are all headquartered in Boston, while the city also serves as an incubator for tech start-ups such as Adelphic, Harmonix and FormLabs, a spinout from the MIT Media Lab that delivers the world’s most advanced desktop 3D printing. Two of the three largest management-consulting firms, Bain Capital and The Boston Consulting Group, are also headquartered in Boston. According to the New England Economic Partnership, Boston’s annual growth rate for the labor force is around 2.3%, and the combination of significant growth opportunities in the life sciences, biotech and higher education sectors provide a competitive network of career prospects for highly skilled workers.
Another major force in Boston’s economy are the 20 plus research and teaching hospitals that provide jobs and produce billions of dollars in revenue each year for the local and state economy. Combined, Massachusetts General Hospital, Brigham and Women’s Hospital, Dana-Farber Cancer Institute, Beth Israel Deaconess Medical Center and Boston Children’s Hospital, are the recipients of more grant funding from the National Institute of Health than any other medical centers in the country. According to the Boston Redevelopment Authority, 13 of Boston’s 50 largest employers are hospitals. Greater Boston has also quietly become one of the country’s primary hubs for private equity and venture capital funding in the biotech, healthcare and life sciences sectors. In the past five years, overall funding has tripled from $2.6 billion in 2010 to nearly $6.6 billion in 2015. One reason investors have their eye on Boston is the density of a highly educated research, technology and engineering workforce churned out of Harvard and MIT. Boston’s lower cost of living and business taxes relative to San Francisco and New York make it a top choice for employers and employees alike.
New Development
Greater Boston has an office inventory of 215 million square feet, and Boston’s development boom is breathing new life into Fenway and downtown, as well as former industrial districts in the South End and East Cambridge. The success of InkBlock South End, a mixed-use residential and retail project in a former industrial neighborhood, led the way for an emerging luxury residential market across the city. In 2018, 345 Harrison Avenue will join InkBlock in the South End as a new 560-unit apartment complex with 30,000 square feet of retail. Increasing rents are driving opportunity for investors and developers, while several major residential and mixed-use developments, including Millennium Tower, 101 Beverly Street and the Hub at Causeway are underway in the North End, Back Bay and downtown. The Hub on Causeway will feature 1.5 million square feet of shops, restaurants, offices, hotel rooms and residences, including what will be the city’s largest supermarket, a 15-screen movie theater, 10,000 square feet of outdoor space and 175,000 square feet of creative office space. Boston Landing, a 15-acre project in Brighton, will house the 250,000 square feet New Balance headquarters, and will include a hotel, practice facilities for local sports teams and a new commuter-rail station. Bulfinch Crossing, the redevelopment of the Government Center Garage, is a prime example of the new development under way in downtown Boston. Breaking ground in 2015, this two-block, 2.9 million square foot project, includes a condo/hotel hybrid, a multi-story retail property, boutique office buildings and a high-rise residential building that will become Boston’s tallest apartment tower, with 486 units. Once complete in 2017, One Seaport Square will be the largest mixed-use project to break ground in Boston. This residential/mixed-use building will consist of twenty-two stories of 832 units in two towers, atop three levels of retail, with three underground parking levels. Other notable additions to Boston in 2016 include the development of a $2.1 billion dollar outpost of the Las Vegas-based Wynn casino, slated to open at the Boston Harbor Waterfront with 24-stories and over 3,000,000 square feet of casino, restaurants, hotel rooms and retail.
General Electric has just released plans for a 2.4-acre campus in Boston’s South End Seaport District, encompassing over 388,700 square feet slated for 2018. When completed, GE will be the largest public company in the state of Massachusetts, drawing a number of programming and design-based jobs to the market.
Investment
At 4 percent unemployment and in the midst of a population boom, Boston’s retail, office and residential inventory is in the midst of an unprecedented development and redevelopment phase. In the office market, demand for high performing Class
B and low-rise Class A space that can be redeveloped as either brick and beam style space and/or adapted to meet the demands of today’s workforce remains high. In fact, the shift in demand has led to vacancy in low-rise office falling below that of high-rise and pushed average asking rents over $50 per square foot. Scarcity in the low-rise inventory has pushed unwilling tenants into premium price Class A space.
Going forward, changing tenant preferences will continue to push the envelope; however, new inventory should be better poised to meet these demands with owners understanding that unconventional space and amenities are now necessary in order to attract tenants. While urbanization is a continued trend in Boston, suburban office owners are still able to command rental rate increases. Through large capital investments, older, suburban offices are being transformed into highly amenitized buildings that appeal to mid-level and younger employees. These re-imagined buildings include gyms with spin and yoga classes, game rooms, indoor and outdoor activity areas, healthy and fresh food solutions like LeanBox and Bevi, and cafes.
Boston’s retail base rents are at near historic highs and leasing remains strong. The strength in Boston’s economy has led to the expansion of core submarkets and revived or created emerging districts such as Fenway and West End. Newcomers to the Boston market include both U.S. and global retailers, including Dublin-based Primark, The Boston Wax Museum and recently announced Italian specialty-grocer Eataly and New York-based fitness club Equinox.
The Boston residential market is growing at a rapid clip and simple growth is partof the resiliency: the city will have at least 709,000 residents by 2030, an increase of 8% from the current population. According to the Massachusetts Association of
Realtors, in 2016, home prices fell 2.3 percent while pending home sales were up 75 percent, the highest they’ve been since 2004. Condo sales were up 61 percent, while pending sales of single-family homes have posted year-over-year increases in all but one of the past 41 months. JLL reported that high-rise sales had reached a five-year high in 2016. With demand pushing rents and cap rates, investors are loosening their geographic parameters and allocating money outside traditional downtown regions, which has impacted asset prices in those regions. Development in the city’s core will bring new inventory online in 2016 and 2017; however, analysts expect to see more investment in suburban markets, which have previously been a slower growth area. Overall, Boston is on track to see continued growth in both residential and mixed-use construction in the coming years, with more and more public companies andstart-ups eyeing the city as a potential base.
