The Massachusetts Teachers Association recently leased 45,000 square feet at Braintree-based Campanelli Cos.’ Heritage Landing office complex in North Quincy.
The South Shore office market is finally beginning to see a long anticipated “spillover effect” that usually occurs when tenants can no longer find affordable space elsewhere in the region.
With available space declining and rents rising in the Boston, Cambridge and suburban markets north and west of the city, the South Shore is seeing a n uptick. More tenants are looking in Quincy, Braintree, Westwood and other towns south of Boston along I-93 and Route 128, real estate executives say.
The biggest beneficiary of the shift appears to be Braintree-based Campanelli Cos., which bought the two struggling Heritage Landing office buildings in North Quincy and an adjacent office building at 108 Myrtle St. (since renamed Heritage Point), totaling more than 500,000 square feet and costing a combined $25 million.
What used to be either vacant or near vacant buildings for Campanelli could soon be filled with tenants getting pushed out of other markets as the region’s economic growth gains momentum. The Massachusetts Teachers Association, for instance, recently signed a lease for 45,000 square feet in the recently renovated Building 2 at Heritage Landing.
Mike Frisoli, executive vice president at Cushman & Wakefield, which represents Campanelli, acknowledged that the turnaround in the market – and for Campanelli’s three new properties in particular – has been extraordinary.
“All three of those buildings could be 90 percent leased in a matter of months,” Frisoli said. “The area is benefiting from a really strong downtown Boston market and a stronger Waltham-Needham market.”
Tenants are finding they can now save anywhere from $5 to $8 a foot in rent by moving to South Shore locations, he said.
General market statistics confirm a general turnaround in the near-South Shore area.
According to data from Jones Lang LaSalle, the Quincy-Braintree market saw its office vacancy rate fall to 17 percent in the first quarter, compared to 20.5 percent in the first quarter of 2014; the Class A vacancy rate fell to 15 percent from 19.5 percent during the same time period.
Meanwhile, rents have steadily increased for that submarket, from about $20.08 to $21.08 – and that doesn’t account for recent April lease activity.
The Route 128 south market has seen its vacancy rate fall to 16.8 percent in the first quarter, from 22.8 percent a year earlier, with rents correspondingly heading up. In the past six months, some top Class A properties in the region have even broken the $30-per-foot mark, executives say.
“The Quincy market has traditionally been an escape valve for Boston – and we’re seeing that now,” said Sean Lynch, a vice president with JLL’s South suburban leasing team.
Lynch said activity at Campanelli’s Heritage Landing has really helped the entire region.
“It’s filled a big hole in the doughnut,” he said. “Before, that site was really dragging down vacancies in the area.”
Other office properties are doing better as well, including Batterymarch Park in Quincy, Braintree Hill Office Park and the multi-owner Crown Colony Office Park in Quincy, industry sources say.
Region Lags Other Submarkets
Lynch acknowledged that the South Shore area is usually the last regional office market to recover following a recession, after the Boston-Cambridge, 128 North and MetroWest markets bulk up with tenants. This cycle, the recovery took particularly long to arrive south of the city.
“I was pulling my hair looking at the performance of the Cambridge and Boston markets,” Lynch said of waiting for a South-area recovery.
“It’s largely considered a less sexy market, but that’s changing,” Matt Kessler, a partner at CBRE New England, said of the near-South Shore area. “The South Shore is reaping the benefits of the overall recovery going on.”
Many people talk about how the tight Boston-Cambridge market is driving tenants south. But the strong Metrowest area is also prompting tenants to look further south and southeast, Kessler said.
Recent area rent increases haven’t been dramatic, but they’re steadily inching up, he said.
Not that everything is gaining momentum in the southern region. The proposed Southfield redevelopment project at the former South Weymouth Naval Air Station has long been stalled and recently gained new ownership in Raleigh, N.C.-based LStar Management.
But there are also a lot of positives south of the city, such as the 2-million-square-foot mixed-use University Station development along Route 128 in Westwood, where retail stores started opening in March.
In Quincy, a massive downtown redevelopment stalled in 2014, but smaller multifamily projects are emerging, reviving expectations that the city and its access to the Red Line will one day become a true destination point for tenants.
