Gradual improvement in the Massachusetts economy will stimulate commercial development during 2014, with mixed-use projects, health care and lab space feeding a busy construction pipeline, industry insiders say.
Respondents to Banker & Tradesman’s annual reader survey foresee a strong year for the Greater Boston real estate market, with 87.8 percent rating it as “very healthy” or “somewhat healthy” this year. The survey was conducted in partnership with Sudbury-based market research firm Bannon & Co.
Industry executives say they expect demand for urban amenities to drive development trends in 2014.
“The greatest areas of development are closer to the city,” said Michael Dalton, a senior managing director and partner at commercial real estate brokerage Cassidy Turley. “Tenants are all wanting vibrancy and walkable amenities, and there’s high demand for public transportation.”
Mixed-use properties, health care facilities and lab space are expected to be the top property types for new construction in Massachusetts during the year, survey respondents predict. Some 53 percent of respondents said mixed-use properties are somewhat likely to be built in 2014, compared with 45.7 percent when it comes to laboratory and health care space and 38.3 percent for low- and mid-rise office space.
The boom in mixed-use construction is being seen in high-profile projects such as Somerville’s Assembly Row, where Federal Realty Investment Trust has received approval to build up to 2,100 apartments, 500,000 square feet of outlet-style stores and 1.75 million square feet of office space next to a new station on the MBTA’s Orange Line.
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“Most urban projects that are on the drawing pad today have some mixed-use component, even if it’s just ground-floor retail,” said Shawn Hurley, executive vice president for Skanska USA Commercial Development in Boston. “That is reflective of the desire to strengthen the urban nature of these buildings, with pedestrian access and activity along the streets.”
Skanska has purchased three parcels in Boston’s Seaport District that it’s developing into office and residential towers with ground-level retail space.
With office vacancies declining, rents will have room to grow in 2014, many survey respondents believe.
Office vacancies in the Boston central business district declined from 10 percent to 9.6 percent during 2013, according to data from Transwestern-RBJ. Average Class A asking rents rose 43 cents to $51.22 per square foot.
No retreat in rents is likely in 2014, survey respondents say, with nearly 47 percent predicting office rents will rise moderately this year and nearly 44 percent expecting rents remain at 2013 levels.
The tightening of the downtown market and the likelihood of rent increases will drive more tenants to the “streetcar suburbs” in 2014, said Peter Brown, director of leasing and business development for Braintree-based developer Campanelli. The company is renovating the 358,000-square-foot Heritage Landing complex in North Quincy, which it acquired for $16.3 million last June, and currently sits vacant.
Office leasing rates will remain the same as 2013 levels, according to 49.5 percent of survey respondents, while 42.4 percent predict leasing activity will increase.
“We’re five-plus years into a recovery,” said Brian Hines, senior managing director and principal for Cassidy Turley. “We hit the bottom of the barrel in 2009 and that was about as bad as it got. It’s taken us this long to slug back to a point of almost equilibrium.”
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