Participants of the “Why Waltham – Why Now?” conference held last week in Boston included: (from left) Michael Cantalupa, Eric Schlager, Paul Marcus and Brian Kavoogian.
While construction for the first new Boston office tower in three years is still in the planning stages, nearly 750,000 square feet of new space has just opened or is under construction in Waltham.
Last week, the Massachusetts chapter of the National Association of Industrial and Office Properties sponsored a conference entitled “Why Waltham – Why Now?” The session, held at the Hyatt Regency Boston, was an opportunity for more than 500 brokers to hear why Waltham is the “epicenter” of the suburban market and how the city has created enough “sizzle” for developers to the leap to speculative office construction.
Moderator Brian Kavoogian, president of Charles River Realty Investors, a Boston-based real estate investment management firm, pleaded with the three panelists not to turn their presentations into a “beauty contest” about their buildings. But that is precisely what happened.
Instead of focusing on how and why Waltham saw the delivery of a 451,000-square-foot speculative office building for the first time in nearly five years last November – with more on the way – three developers politely dueled over amenities.
Among the features of the new or soon to be open facilities include high-end building materials such as French limestone, African mahogany and Norwegian granite, not to mention amenities including Rebecca’s Café, dry cleaners, ATMs, expandable conference centers and indoor heated parking.
“I guess the question of ‘Why Waltham – Why Now?’ never got answered,” acknowledged David Begelfer, chief executive officer of the NAIOP chapter, whose trade group is comprised of 1,200 members representing 360 companies that own or manage 145 million square feet of office, research and development, industrial and retail space in the region. “But it’s a simple story, really. The Route 128 market has tightened, vacancies are falling and rents are rising – the perfect ingredients for new construction.”
Vacancy rates for Route 128 have been a mixed bag over the last four years. Vacancies fell to 12 percent at the close of last year, down from nearly 17 percent in 2005 but still higher than the lowest rate of 10 percent in 2004. Vacancies peaked in 2003 at 24 percent, according to data presented at the conference.
The Route 128 West market is comprised of 21.5 million square feet while the absorption rate last year was more than 700,000 square feet. More importantly, brokers say, about 500,000 square feet is being absorbed annually and rents are moving up. In the fourth quarter of last year, average asking rents were $27.56, up from $25.03 at the end of 2005 – a 10 percent hike, according to Jones Lang LaSalle, the global real estate brokerage with offices in Boston.
‘A Critical Piece’
Paul Marcus, principal of Davis Marcus Partners, spoke of his development, Reservoir Woods, the 120-acre corporate campus in Waltham that encompasses the 50-plus-acre former Polaroid research facility built in the late 1960s, as well as HealthPoint, the Boston Celtics’ training facility.
The corporate campus, formerly the Polaroid Corp.’s global research headquarters, is located on a wooded parcel just off Route 128 at the Cambridge Reservoir. It is one of the last major corporate campus development opportunities in one of the most desirable locations in suburban Boston, according to Marcus.
The $300 million office/research facility, which has the potential for the development of significant additional square footage, was purchased in partnership with Prudential Real Estate Investors in 2001. The first phase, a 451,000-square-foot Class A office building at 920-940 Winter St., was completed last fall.
“We are trying to create an environment that attracts tenants and employees for those tenants because we know there will be a worker shortage in the next decade,” said Marcus. “It’s hard to find the right people to hire and tenants are working hard to retain employees and attract new ones. It’s a critical piece of their decision-making of their corporate growth.”
At the time of the purchase, Marcus said, he recognized that most Class A office space in Waltham was as much as 15 years and there was a lack of large blocks of space for growing tenants.
Eric Schlager, chief executive officer of The Bulfinch Cos., noted that of the 88 tenants looking for space in the central Route 128 area, 73 are looking for 65,000 square feet or less while another four dozen are seeking 5,000 square feet to 25,000 square feet. “[The smaller tenants] are the ones we will cater to,” said Schlager.
Bulfinch has started construction at 1560 Trapelo Road. The company is building a 3-story, 60,000-square-foot facility that will be ready next year.
“When you figure that we first met with the property owner in 1998, we spent a lot of time working this transaction,” said Schlager. “I’m not sure how solid an investment deal we have here when you figure our hourly time. You are better off being a lawyer.”
Michael Cantalupa, senor vice president at Boston Properties, is building 77 Fourth Ave., a 6-story, 200,000-square foot building that should be ready later this year.
“If you think of tenants as a spectrum of less price-sensitive tenants to more price-sensitive tenants, we are clearly going for the less price-sensitive, or elite quality, tenants – those who can afford to pay $40 per square foot for a brand-new building,” he said.
Boston Properties refused to release an artist’s rendering of an interior shot of the facility that was shown at the conference. A spokeswoman said the company feared that a black-and-white photo “will not provide the best view of the space.”
