After acquiring five office buildings in Westborough Office Park in the past few months, Carruth Capital is testing the waters for 1 million square feet of new development.
Savvy commercial real estate investors love a bargain and discounts abound on the Route 495 belt, where sprawling former tech campuses can sell for the price of a luxury condominium in Boston.
Rent discounts in the Route 495 west submarket have widened to levels not seen in 20 years, according to research from Colliers International. That’s a reflection of double-digit vacancies in most communities, including a 21 percent rate in the 6.3-million-square-foot Marlborough market. Commercial properties in Marlborough, Northborough, Southborough and Westborough also are selling at twice the historical discounts to downtown.
But demographic trends that favor urban living and workspaces for Millennials could swing back in the outer suburbs’ direction. The population between the ages of 20 and 34 grew by 27 percent in Northborough, Southborough and Westborough from 2010 to 2016, pointing to a value-add strategy for commercial investors to update office parks with retail, hotels and housing.
Steve Adams
“You need to make properties a destination and differentiate your product, because so many of these assets were built in the late 1990s during the tech boom and they’re relatively commodity-like,” said Aaron Jodka, research director at Colliers Boston. “You need a big property to make that happen.”
Marlborough Hills, an ongoing 1-million-square-foot redevelopment of a vacant HP campus, is the most prominent recent example.
Framingham-based Atlantic Management acquired the 110-acre property in 2012 for just $8.7 million and leased nearly 500,000 square feet in one of the former HP buildings to Quest Diagnostics, GE Healthcare and a Whole Foods Market regional office. It sold off other parcels for a 350-unit apartment complex, 163-room hotel and daycare center.
Atlantic Management CEO Joseph Zink said he’s engaged in talks with potential tenants for a pair of build-to-suit office buildings totaling close to 500,000 square feet, replacing a vacant 144,000-square-foot building at 2 Results Way. Along with rent discounts, the property is being marketed as an antidote to the ever-deteriorating commute to Boston.
“You have a lot of younger employees who are living on 495 once they have children and leave the city. The home prices on 128 are fairly high,” Zink said. “And for senior executives, it’s a reverse commute.”
Atlantic Management made another bet on growth in the suburbs last year with its $6.5 million acquisition of 50 Otis St. in Westborough, a 450,000-square-foot vacant former AstraZeneca biomanufacturing facility on 66 acres. The building is suitable for advanced manufacturing, office and research space, Zink said.
Seeking Certainty of Permitting
Potential tenants seeking space in the 495 Central market include Southborough-based health care consultants Visiant and Allegro MicroSystems, according to industry research.
Fast-track permitting could assist Carruth Capital as it seeks to develop 1 million square feet of commercial space on West Park Drive in Westborough. Carruth acquired four office buildings totaling 385,000 square feet last summer for $40.7 million and a fifth 75,000-square-foot building for $6.2 million in January. Westborough-based Carruth also has owned an undeveloped 66-acre adjacent parcel since 2003.
The town of Westborough is considering adopting a Chapter 43D expedited permitting district for the property, as Carruth eyes potential additional development including a hotel. Under the state law, communities can designate priority development sites where permitting decisions are guaranteed within 180 days. 43D districts also receive priority consideration for MassWorks infrastructure grants.
With corporate real estate decisions increasingly fast-paced, a typical permitting process stretching for one to two years can make the difference in a successful or failed deal, said Marc Verreault, a vice president at Carruth Capital.
“It’s one thing in Boston where you can build on spec, but in the ‘burbs it’s impossible to land somebody without some certainty of (permitting) success at the end,” Verreault said.
To justify new construction, tenants would need to agree to leases in the $30 per square foot range gross, he said.
Many of the larger availabilities in the market are suitable for corporate headquarters or life science companies seeking manufacturing sites in a timely manner when they commercialize products, said Andrew Sherman, an assistant vice president at JLL.
But amenities – either on-site or nearby – remain important criteria, said Sherman, citing the recent opening of the 496,000-square-foot Apex Center entertainment and retail complex in Marlborough as increasing the desirability of nearby office properties.
“That’s great for other building owners in Marlborough, because those amenities are at their fingertips for their tenants,” he said.
