It’s no secret that office buildings in Boston are selling for higher prices than were seen before the Great Recession brought so many industries to their knees.
The city has seen virtually no speculative office construction, and the new towers being built for State Street, Liberty Mutual and soon for PriceWaterhouse Coopers, will already be full of tenants when their doors open.
That’s driving up rents across the downtown and ancillary neighborhoods, including the Seaport, Back Bay and Financial District.
Average rental rates in the city’s central business district in the second quarter were up 4.2 percent from the end of 2012, according to information from Cushman & Wakefield, a commercial real estate services provider.
Plus, the vacancy rate in Boston’s downtown office buildings has dropped 2.7 percent to 9.2 percent since last year, information from brokerage firm Cassidy Turley shows.
“Investors can very legitimately underwrite strong rental growth into the future, and that translates into higher property values,” said Scott Jamieson, a principal with Canadian brokerage firm Avison Young’s capital markets group. “The market is fundamentally strong and only getting better.”
That’s one of the reasons an aging property like the 20-story 99 Summer St., built in 1987, just sold for $110.8 million, according to commercial brokers familiar with the office asset.
It also is because buyer Cornerstone Real Estate Advisers did not previously own a Boston tower. The firm has invested heavily in the development of Fan Pier in Boston’s Seaport, and ranks in the upper echelons of global real estate managers, with offices in the U.S., Asia and Europe. But the firm was towerless, and “when a pension fund client looks at advisors and wants to be [invested in Boston], and Cornerstone doesn’t have an asset there, that’s a problem,” offered one real estate expert who asked for anonymity. Cornerstone declined to comment.
Also recently, Newton-based Senior Housing Properties Trust acquired 549 Albany St. in Boston for $49.5 million. PerkinElmer Health Sciences Inc., which sold the property, will continue to occupy the property on a 15-year lease. The complex comprises three contiguous office, laboratory and manufacturing buildings totaling 105,462 square feet of space in Boston’s South End neighborhood.
Outside Boston, Blackstone Group has started marketing the 165,000-square-foot Riverview Center at 245 First St. in Cambridge, according to real estate executives. One real estate insider said it is too early to tell what price the property, built in 1985 and renovated four years ago, will command. Yet some reports have put the ballpark figure at $200 million. Blackstone this week will also start marketing for sale a downtown office property well known to Government Center dwellers. Pricing for Center Plaza, the 726,000-square-foot crescent-shaped office property along Boston’s Tremont Street across from City Hall, could target about $350 million, according to industry experts.
Blackstone has yet to sell outright any of Equity Office Properties’ major downtown Boston office towers, but eventually will shift its focus downtown from the suburbs, where the EOP sales have been occurring, said Frank Petz, Jones Lang LaSalle’s managing director for capital markets in New England.
In addition, 51 Sleeper St. in Boston’s Seaport will likely be for sale in the coming months. DivCoWest purchased the 150,000-square-foot building, which was constructed in 1929 and renovated in 2004, last November. Real estate sources say the building will likely sell for between $350 and $375 a square-foot, or between $52.5 and $56.25 million.
Boston is near the top of the markets where investors want their funds placed. Federal sequestration has diminished the desirability of the Washington, D.C. market slightly, “and I think we’ve elevated as a result,” said Avison Young’s Jamieson.
Between D.C., New York City and Boston, Beantown was in third place for investor appetite six months ago; Jamieson argues the city has risen to number two or even the top spot right now because NYC is so expensive, driving many investors to focus on Boston.
Even so, it’s possible Boston might not have an adequate supply of real estate investment opportunities to retain that interest.
“From a domestic and foreign capital standpoint, Boston continues to be a primary target market as fundamentals across the board are substantially outperforming other markets,” said Coleman Benedict, senior managing director of mortgage banking firm HFF. “While HFF’s pipeline for the fall is robust, the anticipated supply of product still will not be sufficient to satisfy the pent-up capital seeking investments in the Boston area.”
Email: jcronin@thewarrengroup.com
