Banker & Tradesman readers say prospects for office and condo construction will remain bleak in 2012, multifamily projects will remain highly financeable and retail construction is unlikely to pickup.
More than 42 percent of developers and commercial construction professionals responding to Banker & Tradesman’s annual reader survey, conducted in partnership with Sudbury-based market research firm Bannon & Co., said high-rise office construction is very unlikely next year. More than 48 percent said they expected the same for stand-alone retail construction.
And while the majority of respondents said it’s somewhat unlikely debt will be available for office development alone, some developers are expecting the credit markets to open wider than they did in 2011, especially for mixed-use projects. Those developments that bundle workplaces with spaces to shop or live are the ones most likely to be financed, according to industry experts.
“We think now is a great time to buy land and permit projects,” said Boston-based developer Sam Park.
Park recently received financing for a modest 50,000-square-foot retail and office project to be built at the entrance to Mansfield Crossing, off Interstate 495 in Mansfield. He plans a 15,000-square-foot retail center and about 35,000 square feet of office space with executive suites. Park, head of Sam Park and Co., is also planning to begin work in Littleton on a 400,000-square-foot development with retail, restaurants, offices and other uses. Park purchased the undeveloped 90-acre property off Great Road, previously owned by Cisco Systems, at the end of August. The site is approved for 640,000 square feet of commercial space.
‘All Things Pass’
“I think debt is becoming more available,” Park told Banker & Tradesman. “Now that rents are starting to improve and have stabilized … and given the money waiting on the sidelines and improved retail sales and employment numbers, all commercial classes have stabilized. Just like a kidney stone, all things pass.”
Another project expected to break ground this year is the long-awaited Market Street at Lynnfield, where National Development plans to start construction of 395,000 square feet of retail space with approximately 60 stores, 80,000 square feet of office and 180 apartments. The firm said it also expects to start work on an as-yet unnamed redevelopment of the Boston Herald’s headquarters in Boston’s South End neighborhood.
“We’re cautiously optimistic,” said National Development Managing Partner Ted Tye. “There are various rays of sunshine out there. We have some pretty high-profile starts that we’re anticipating next year, but the economy is certainly not booming. I think we’ll see projects in the retail field and numerous in residential, maybe a couple build-to-suits in the office area. But it’s not a return to the good old days.”
As far as leasing goes, readers disagreed whether office leasing velocity will pick up next year. While more than 33 percent of respondents identifying themselves as developers said leasing will fall some, almost 40 percent of commercial realtors surveyed said velocity will increase.
Submarkets like East Cambridge and Boston’s Back Bay are nearly maxed out for office space, with both posting vacancy rates less than 7 percent, according to information from Richards Barry Joyce & Partners (RBJ).
With no new product besides potential build-to-suits in the pipeline, the lack of supply and increased demand could push rents even higher. And given the space crunch in those highly sought-after submarkets, the hundreds of thousands of square feet of vacant office space in the Financial District could see some serious absorption.
“I know it’s an election year and to some extent that may be paralyzing to some people and companies, but transaction volume will increase,” said Joe Fallon, managing principal for Cassidy Turley FHO. “We’ve already seen strong rental growth in Back Bay and Cambridge office space. It’s very simply a function of supply and demand. I think it will continue out to parts of Route 128 as well. The area that will continue to be challenged is the Interstate 495 belt. There’s just too much supply and too little demand out there. But there are great opportunities for aggressive investors that want to look at buying property on I-495.”
No article on future commercial real estate activity would be complete without mention of the region’s bourgeoning laboratory market. More than 44 percent of all commercial realtors, construction professionals and developers said they believe debt will be more readily available for lab development next year.
In the last 10 years, 5.9 million square feet of labs have been added in Boston and Cambridge, and at present there is some 1.4 million square feet planned or under construction that is already 70 percent pre-leased, according to Brendan Carroll, senior vice president of research for RBJ.
