The Greater Springfield office market has enjoyed stable rent rates and a vacancy rate of just 5 percent. CB Richard Ellis’ office in Hartford, Conn., recently renegotiated a 42,000-square-foot lease in Springfield at 1350 Main St.
There may be a light at the end of the tunnel, as several Boston brokers like to say, but in the western portion of the state, that tunnel never went black – at least for the office market.
While the Greater Boston commercial real estate sector crawls toward recovery and continues struggling with a bifurcated tower market, reduced rents and vacancy rates that range from the double digits into the 30 percent range in the suburbs, the Springfield market remains stable.
In fact, the city’s office market overall is quite healthy, said John S. Williamson, vice president of the CB Richard Ellis office in Hartford, Conn. With a vacancy rate at 5 percent and rents that have held strong, the Springfield market proves a stark contrast to Greater Boston.
“Typically, when things are bad for Boston, they’re not as bad for us but when they’re good, they’re not quite as good, either,” Williamson said. “We march to our own tune.”
A steady local economy has been credited with another trend unique to Western Massachusetts – stable rent rates. Rents for the past few years have ranged between $15 per square foot and $18 per square foot. At the height of the market – before the economic crash of the early 1990s – Class A office rents peaked at $23 per square foot before plummeting to $12 per square foot in 1993 to 1994. As the economy began recovering, rents in the Greater Springfield area hit almost $20 per square foot before settling down to their current levels.
Despite high tenancy and stable rents, the investment market isn’t offering hefty proposals for Western Massachusetts’ buildings. Earlier this month, Boston’s One Lincoln St. captured almost $700 per square foot. That doesn’t happen in Springfield, Williamson said. But property sales prices remained stable in the investment market as well, with per-square-foot prices ranging from $20 for Class B properties to $85 for top Class A buildings.
Traditional Businesses
Williamson called MassMutual Financial Group a shining star in the Springfield market. As the company grows, it has solidified a major presence as both a tenant and property owner. Its headquarters comprises 1 million square feet – and when combined with its offices in a downtown office tower, its property totals 1.6 million square feet.
Additionally, CB Richard Ellis recently completed a lease renewal at 1350 Main St. for Disability Management Services, a third-party service provider for disability insurance. The 42,000-square-foot lease was renegotiated for a longer term and a more favorable rate. In a market with tower leases that average 5,000 square feet, that deal was significant, Williamson said.
As the office market holds steady, Springfield continues several multimillion-dollar projects. An $86.2 million public/private expansion of the Springfield Civic Center is under way, the city recently broke ground on a $54 million federal courthouse in the central business district and work continues on a $30 million project that will transform Union Station into a multi-service, mixed-use development.
The stark contrasts between Greater Boston and Western Massachusetts leave little room for comparisons. The two markets, shaped by different conditions, continue to follow entirely different paths.
Brendan L. Carroll, research analyst for Grubb & Ellis in Boston, said the fluctuations, lease rates and vacancies in Springfield are very slight compared to the Boston market. During times of economic expansion, such as the technology boom of 1998 to 2001, entrepreneurs or growing companies flock to cities with large labor pools such as Boston, San Francisco or New York – but when funding sources dry up, as they did in 2001 and 2002, company failures translate into large vacancies, according to Carroll. Western Massachusetts communities, on the other hand, generally escape unscathed.
“In general, during a boom, Boston’s a very attractive market to enter,” Carroll said. “The problem is when the economy turns downward. For the companies that came, it’s then time to leave.”
Western Massachusetts, on the other hand, depends on more traditional businesses. Its top employers include the University of Massachusetts, MassMutual, the grocery chain Big Y, Milton Bradley, Yankee Candle, the Friendly’s restaurant headquarters and the golf-ball maker Spaulding.
“We weren’t as heavily dependent on the telecommunications market as Boston was,” Williamson said.
The Greater Springfield area attracts relocating companies based largely on its location. At the intersection of the Massachusetts Turnpike and Interstate 91, the city sits along a corridor that runs from New Haven, Conn., into Canada. For companies looking for a easy access, absent of the traffic congestion typical of Interstates 95 and 93, Springfield serves as a base that can be reached quickly and efficiently. It’s also an escape from the high rents and housing prices typical of Greater Boston.
“The cost of living is quite reasonable,” Williamson said. “We have a lot of recreational facilities, we’re close to Boston and New York, we have a wonderful arts community – great music and cultural amenities,” Williamson said. He added one more benefit – Bob Dylan concerts at the Civic Center.
Kristie DiSalvo may be reached at kdisalvo@thewarrengroup.com.
