Image courtesy of MP Boston
Boston’s commercial real estate is the most resilient North American innovation cluster in adjusting to the pandemic era shifts in demand, according to a report on 2023 market trends.
The Urban Land Institute and PwC report groups Boston in its “Knowledge and Innovation Centers” category along with New York, San Francisco and Washington, D.C.
Boston ranked eighth nationwide in overall real estate prospects for 2023 and the only non-Sunbelt metro in the top 14, according to the report which is based upon interviews and surveys with more than 1,400 real estate executives.
“With the most educated workforces in the United States, these innovation centers are by far the most productive, with per capita GMP more than twice that of any other subgroup—along with some of the most expensive housing in the country, along with the highest costs of doing business,” the report states. “This group remains somewhat out of favor with investors relative to its former glory not long ago. Only Boston remains among the 20 top-rated markets. Boston has leveraged its region’s world-class concentration of higher education to become a world leader in life sciences.”
The Cambridge and Seaport District life science clusters were ranked as the top North American markets from 2015 to 2022.
Even Boston’s hotel market – one of the nation’s hardest-hit amid the pandemic’s disruption of business travel – is recovering strongly. Revenues per available room reached 88 percent of pre-pandemic levels in the first half of 2022, according to CoStar data.
The report characterizes 2023 as a transitional year for commercial real estate prospects across North America, as rising interest rates and declining economic prospects depress investment.
The for-sale and rental housing markets are already cooling on a national scale, and the once-white-hot industrial warehouse market is unlikely to maintain its recent growth, the report states.
The prospects for office properties hinges upon the duration of hybrid workplace policies and their effect on future demand.
“Probably somewhere between 10 and 20 percent of the stock needs to be repurposed, leaving the 80 percent that really does a better job of delivering what tenants want,” one executive told the report’s researchers. An affordable housing developer expressed hope that some office buildings can be turned into residential buildings, including some homeless shelters.
“It’s all going to be triggered by when major leases roll or debt matures or there’s some debt extension test that comes up,” an investment banking executive told researchers. “Some of those buildings will come back to the lenders, but others may be candidates for conversion to other uses.”
