Boston Properties’ mall at the Prudential Center was one of many retail meccas that welcomed new tenants in 2006.
2006 was an exciting time in retail real estate in Eastern Massachusetts. A myriad of varied projects recently came to fruition and completion. It is encouraging news that demand from retailers remained strong and the retail market continued to thrive. Rents increased, while sales figures per square foot rose.
On the investment front, as multifamily and office units have become the Wall Street asset class darlings, retail real estate cap rates softened slightly. Retail as an asset class is defying market predictions that rents will fall, retailers’ credit ratings will worsen and spaces will not be filled. Advisors Retail, a national retail real estate advisory firm, predicts moderating cap rates with slight appreciations in rent over the next few months.
In Boston, the retail market flourished in 2006. Retail sales figures were strong, as was consumer confidence. The Dow hit a record high and unemployment rates remained low.
Considering those market fundamentals, there were many retail projects, large and small, to celebrate.
The demand for larger and more unique lifestyle centers in the suburbs drove local developers like General Growth Properties and W/S Weiner to take action and fill the gap with retail destination centers.
Natick West, the mixed-use project developed by General Growth Properties, will add 100 new luxury retail stores to the existing mall. This upscale project will be anchored by a 144,000-square-foot Nordstrom and a 100,000-square-foot Neiman Marcus.
W/S Development continued to expand its retail portfolio with the addition of Legacy Place and Park Square in Reading. Legacy Place in Dedham, situated at the intersection of Routes 1 and 128, anchored by a 60,000-square-foot Whole Foods and a 91,000-square-foot National Amusement Theater, houses an array of nationally branded apparel retailers accompanied by several sit-down restaurants. Legacy Place is expected to have a successful opening in the summer of 2008. Joe Zink of Atlantic Management developed Wayside Commons in Burlington. The lifestyle center encompasses 196,000 square feet of class A retail, and many of the retailers are now open for business.
The New England Patriots also caught the attention of the retail world with Patriot Place, a million-square-foot mixed-use project. It will foster New England brand awareness and is expected to bring vast national and local media and television exposure to retailers. The project consists of a power center anchored by Bass Pro Shop, a specialty center with a 500-plus seat cinema, various eating establishments and upscale specialty retailers.
Eclipse Partners, LLC, a Boston-based real estate investment firm, completed construction of Needham Gateway Shops in December. The 24,000-square-foot urban lifestyle center, located on Highland Avenue, features Panera Bread, Jos. A. Banks, Omaha Steaks and Mattress Giant.
The Boston Market
The late-2006 opening of the Fenway area’s Trilogy retail shops, with facades on the high-traffic paths of Boylston Street and Brookline Avenue, demonstrated a high appeal for a young and hip demographic neighborhood by featuring West Elm, Williams Sonoma’s new furniture concept, Burton’s Grill and Cambridge One.
Advisors Retail saw rental rates from $40 per square foot in the Fenway neighborhood, $50 per square foot in Needham and Dedham and upwards of $100 per square foot at Natick West.
The urban market also steamed in all neighborhoods with rapidly declining vacancy rates. According to Advisors Retail, Newbury Street was at a 2% vacancy rate in December as rents continued to climb. Luxury retailers Valentino and Loro Piana joined the high-end first block, both of which have created a buzz around the Back Bay. Those in the know have already begun circulating word that Prada signed a lease at the Mandarin Oriental Hotel on Boylston Street. Prada will be the tipping point for high-status retail in Boston. It is likely that other high-end European retail concepts will follow Prada into the Back Bay.
The upscale retail tenants are a reflection of the push by Back Bay landlords to drive the so-called “mall-like” tenants off Newbury and Boylston and restore the streets to their trendy, upscale roots. One Newbury Street landlord recently declined an aggressive offer of a national “mall” tenant, claiming the tenant was “too mass market for Newbury Street.” This push has encouraged Zara, an international fashion company, to actively seek a flagship store in the Back Bay. Zara is reportedly considering the 24,000-square-foot multi-leveled Emporio Armani space on Newbury Street, which most recently came on the market. The 3-story glass facade Apple Store, which will be located directly across the street from the main entrance to the Prudential Arcade, is creating a buzz. Urban Outfitters’ Free People opened in Boston Properties’ Prudential Mall in late 2006 and P.F. Chang’s and Coldstone Creamery are also set to join the strong tenant mix at the Prudential Center.
As retailers open for business in their new locations, time will tell how they perform. Eastern Massachusetts is still under-retailed and there is room for more development. One caveat is the potential affect on retailers of a housing crash. If consumers are behind on mortgages, adjustable-rate mortgages convert to market rate and appreciation will turn into depreciation and consumers will no longer be able to refinance and find debt-relief. Retail sales will take a hit, and the calm of the stable environment that we experience now will be altered.
