Two Boston submarkets, Longwood Medical Area and the Back Bay, are tighter than any others, and aren’t showing any signs of slowing. But some commercial real estate experts are calling the neighborhoods’ high prices "unsustainable."
Office landlords in the Longwood area, populated by professionals in the healthcare industry, have no space to offer with a zero percent vacancy rate. In the Back Bay, Cushman & Wakefield just signed a lease in the Back Bay with a money management company for about $80 per square foot, according to Robert Griffin, Cushman’s president in New England.
"Global concerns are weighing heavily on investors right now," Griffin told a packed house at a NAIOP Massachusetts event in Copley Square this morning. "Some people are predicting that the Euro might not even exist in a week or two, which will have serious consequences. [This is] a weird time. But there’s nowhere I’d rather be sitting this morning than in Boston."
While the low-rise portions of several downtown properties are struggling, the Back Bay will continue to be the prime target for companies and workers that want to live in a 24-hour environment near where they work, Griffin opined.
To wit, Charles O’Connor, principal with Cassidy Turley FHO, said that when he told a client about the prices available in the Back Bay, that client asked, "Well, what about downtown?" The $70 a-foot rents in the Back Bay are likely not sustainable, because there are only a few companies willing to pay them, O’Connor said.
Looking to the suburbs, the powerhouse battle between Waltham and Burlington continues. But the price gap is shrinking between the two as Burlington rents rise, narrowing the gap to roughly a five dollar difference, according to Alexander Dauria, executive vice president for Jones Lang LaSalle. But new product should be coming to the market in the next 12 to 18 months as Boston Properties moves forward with renovations to its Bay Colony Corporate Center in Waltham. Dauria said he expects the refurbished office park to "come out strong" when it hits the market.
In the retail sector, there is no net demand for growth nationwide, said Douglas Poutasse, head of strategy and research for Bentall Kennedy.
"That is actually good for the long-term health of the U.S. economy," Poutasse said. "We need to consume quite a bit less. But for the retail property type, investors got so addicted to that demand growth that it has a bit too much supply. You need to be where demand growth is, and it’s in places like the Boston area."
