Locally, the demand in the interior construction market has been building momentum through the second half of 2007. Available space has become tighter, rents are on the rise and a number of large lease requirements are competing for the same space. In addition, with new retail centers such as Natick Collection, Patriot Place, Legacy Place and The Loop either coming on line or completing major phases, the demand for retail and restaurant construction also has increased significantly.
Demographic studies show that consumers are continuing the trend of dining out, fueling expansion of restaurant chains nationwide. The most recent statistics show that restaurant construction is already up nearly 13 percent year-over-year. Such consumer demand is sparking tremendous expansion, particularly in the fast-casual dining sector that includes chains such as California Pizza Kitchen, The Cheesecake Factory and BJ’s Brewhouse, among others.
As restaurant chains continue to penetrate the Greater Boston market, they are choosing to partner with construction firms that have experience servicing their unique needs while delivering their restaurants on schedule. Timeliness of completion and predictability of outcome is critical to restaurant clients. “Store weeks” are the common denominator to every concept’s viability. Suffolk Construction, a Boston-based general building contracting firm, recently created an interiors group, Suffolk Interiors, which is capitalizing on this trend. The team’s ability to deliver on schedule, intended design, and overall financial model has put the group in a position to take advantage of the growing market, and will pave the way for further growth into 2008.
Growing Trends
The retail market also is expanding rapidly. Luxury and specialty retail stores such as Apple, Calvin Klein, Frette and Polo continue to grow, and consumer demand for high-end products is driving retail expansion to an estimated 11 percent increase in 2007, with another 6 percent gain anticipated for 2008.
Evidence of the growing luxury retail trend can be seen across New England, particularly in the city of Boston. Suffolk Interiors is experiencing some of this growth firsthand. The company is constructing the Estudio Zara retail store on trendy Newbury Street in Boston. The team is constructing this 27,168-square-foot store in 24 weeks to meet the grand-opening date in early 2008.
Suffolk also is managing the new construction of several major retail centers, including Legacy Place, The Loop lifestyle center and the high-profile Patriot Place complex adjacent to Gillette Stadium, for which nine 100,000-plus-square-foot retail buildings are being constructed in nine months.
In 2005, the office vacancy rate hovered at 13 percent – the largest vacancy rate the city had seen in years. Just two years later, the office market is painting a much more promising picture. Vacancy rates currently stand at a low 7 percent and the average asking price per square foot is $53. This puts a significant amount of office fit-out projects in the pipeline and forces tenants to take a hard look at their current arrangements – stay put at a higher price or explore new space in new, potentially less expensive, developments.
Typically, the Boston corporate interiors market averages approximately 10,000 square feet, with an average of 3.2 million square feet velocity every year. The competition for office space has increased in 2007; many smaller clients are competing with an unusually large number of fit-out requirements in excess of 50,000 square feet.
As Boston market space has been absorbed, rents have risen and office relocations are at a premium. Many firms have explored new space in the redevelopments of Fort Point Channel and Fan Pier. Continued activity in this space should give contractors a host of new opportunities in corporate interiors through at least 2009.
Suffolk Interiors has been particularly active in the high-end commercial fit-out market. One of the team’s most recent projects was a 110,000-square-foot fit-out for Hill Holliday. It is a significant project for the high-profile advertising agency, which is relocating to a prestigious new address at 53 State Street.
With such a positive outlook on interiors, it’s important for all contractors to be mindful of the current credit crunch and its potential impact on the real estate market as we move into 2008. As it becomes more difficult for owners to secure the funding they need for construction projects, we have to be prepared for the credit crunch to reach the interiors space. Because construction costs typically represent the majority of relocation expenses, helping clients offset those costs through intense preconstruction planning will be critical to weathering this period of economic uncertainty and maintaining solid momentum in the sector.
Offering clients extensive preconstruction services to ensure that their projects remain financially viable is essential. From estimating and purchasing to value engineering, estimators and project management staff must understand their clients’ unique wishes and work together with them to maximize every dollar spent. As the restaurant, retail and office interior markets continue to grow, specialization in each of these markets is critical to satisfying clients’ needs.
