Has Boston’s epic building boom finally peaked? Or is it just taking a breather?
That’s the question after the latest numbers show a 27 percent decline in new projects being approved at Boston City Hall in 2015. Particularly troubling is the relative fall-off in new condos and apartments approved by the Boston Redevelopment Authority, which fell to the lowest total since at least 2011.
The numbers have to be put in context of the huge amount of new residential and commercial construction that has helped transform Boston over the past few years. But it also matters in what direction those development numbers are trending, and a 27 percent drop is probably not a complete statistical anomaly. In fact, it comes at a time when there is growing unease over how much longer the current real estate boom – and the economic expansion that underpins it – can last.
“There’s lot of stuff coming on line,” noted Greg Vasil, chief executive of the Greater Boston Real Estate Board, of all the new luxury apartments opening in Boston. “Maybe what they are doing is taking a breath and seeing how things are going before they jump in with both feet.”
Here’s what the numbers tell us.
The Boston Redevelopment Authority signed off on 7.1 million square feet of new commercial and residential space in 2015, stats released by the city authority show. That includes 3,380 new apartments and condos, 804 of which were affordable, subsidized units.
Undeniably, those are big numbers – that’s enough space to fill seven new Prudential towers. But it is a significant drop from the 9.8 million square feet of space – including 4,452 new condos and apartments – that were given the green light by City Hall last year. In fact, it was the lowest number of residential units since at least 2011, though, in a bit of good news, the number of affordable units was about the same.
That said, the numbers are hardly dropping off the map.
City officials are looking to put the Winthrop Square garage out to bid for the next major downtown tower project, while plans for a new tower at the Garden garage are also expected to win approval in 2016.
“I don’t think we can definitively say that Boston’s building boom has peaked,” Nicholas Martin, the BRA’s spokesman, noted in an email. “Certainly the numbers show a tapering off in activity, but I know there are several large projects in the pipeline that have yet to be approved.”
David Begelfer, chief executive of NAIOP Massachusetts, which represents developers across the state, sees no cause for concern. He sees the numbers more as a reflection of bureaucratic scheduling as different projects come up for approval and others wait in line over at City Hall.
“We are not seeing activity peak at all,” Begelfer said. “Right now going through the process are fairly large projects that take a little longer to get approved.”
Yet despite all the bullish talk, if you poke a bit, you’ll find some significant undercurrents of anxiety.
As a flood of new luxury apartment towers swamps downtown Boston, some bankers are starting to grown more cautious.
Frankly, no banker wants to get stuck holding big loans on the next big thing in apartment living or corporate suites just as the real estate market and economy starts to cool. In fact, bankers I interviewed for a recent piece in Banking New England were upfront about their concerns and were looking at new projects even more cautiously than usual.
“There is a lot of construction out there,” Bruce Potter, executive vice president of Salem Five Bank, told me. “We are starting to get a little nervous about the level of construction and the dollars involved.”
And he wasn’t afraid to use the B word.
“With (office) rates and (apartment) rents at all-time highs, there may be some sort of bubble going on – we may be reaching that bubble,” Potter said.
It’s hardly misplaced anxiety. Even if it felt like not much of a recovery at all at times, we’re now six years and counting since the Great Recession officially ended in 2009. The recovery, if not getting long in the tooth, is beyond its early days. So what does that mean as we look towards 2016?
Developers as well as bankers know very well how to read the economic clock, and no amount of happy talk can silence that steady ticking sound. Some developers are going to be thinking hard about whether they want to get approval now for a project and risk having it open in two or three years, in what could be a very different economy.
It’s a calculation that wasn’t as important – or timely – back in 2013, when city officials signed off on a whopping 16 million square feet of new office and residential construction across Boston.
“You want to deliver on the upswing, not on the downswing,” Vasil said.
All things being equal, we may have reached the peak of the current boom. It may just take a year or two before the idea catches on beyond the realm of development insiders and lands on the front page of one of our larger and esteemed competitors.
