MITT ROMNEY
‘Sense of inevitability’
Massachusetts faces a crippling ripple effect if it doesn’t do more to keep its businesses here in the Bay State, Liberty Mutual President and Chief Executive Officer Edmund Kelly said last week at Meredith & Grew’s 25th annual “Trends in the Real Estate Market” event.
“If we don’t do anything, there will be a brain drain out of Boston,” he said. “Barring any significant action, it will be evident in 10 years … In short, the stakes are high.”
Kelly spoke before more than 400 commercial real estate professionals, a crowd that also included a surprise visit by Gov. Mitt Romney. The governor took to the stage at the end of the event, emphasizing his own concerns about the regulatory burdens, taxation and housing problems that harm Massachusetts’ ability to attract and keep companies.
Liberty Mutual, founded in Boston in 1912, employs 37,000 people in more than 900 offices around the world. The company, ranked 129th on the Fortune 500 list, remains based in Boston. However, Kelly said the hurdles in Massachusetts makes doing business in Boston difficult.
“It’s much easier for Liberty Mutual to do business in China or Venezuela than in Massachusetts,” Kelly said. “Most of the country’s top insurance companies won’t sell in this state because it’s not profitable. The reality is that the internals of the state make doing business difficult … Right or wrong, it’s viewed as unfriendly to business.”
Liberty Mutual opened a new office this month in Chongquing, China, a city of 31 million people. The office will provide property and casualty insurance to businesses in western China with hopes to provide coverage for private automobile insurance over the next few years.
Kelly said companies are faced with two choices – they can continue migrating business and jobs to other states and countries or they can make Massachusetts more business-friendly. He’s hoping that other business leaders will join him in the quest for reform.
Romney said he too remains concerned about Massachusetts’ ability to hold onto business. Too many people, he noted, simply assume that businesses will remain in Massachusetts for the long haul.
“There’s a long-term sense of inevitability … a feeling that every company that’s here will stay here,” Romney said. “It’s [a situation that’s actually] fragile – companies and employers have every opportunity to outsource jobs. We have to do more to bring employers here.”
‘Recovering’ Market
The event also covered Meredith & Grew’s forecast for 2004. Executives emphasized the “light at the end of the tunnel” and a stabilization within the overall market. Downtown Boston, for example, experienced 5 million square feet worth of deals and a positive net absorption of 700,000 square feet. Leasing favorites this year include Digitas, United Way, UBS Paine Weber and Testa, Hurwitz & Thibeault.
Sublease space declined significantly, however, and corporate downsizing could impact that trend, said Ronald K. Perry, executive vice president of Meredith & Grew. Looking ahead, the company projects that vacancy and velocity will remain stable in 2004 at 16 percent and 3.5 million square feet, respectively.
In Cambridge, demand remained weak in 2003, with year-end vacancy pegged at about 24 percent in the office market. Office rents fell 18.4 percent, hitting levels last seen in 1996. Meredith & Grew Executive Vice President Joseph P. Flaherty said he expects that rents will continue to fall. Predictions for 2004 include a continuation of low rents and a rebound that remains 18 to 24 months away.
Vacancy rates in the suburbs ended 2003 at 25 percent overall and 8.1 percent in the Interstate 495 South area and 34 percent in I-495 West. While rent rates dropped, the submarket experienced 689,395 square feet of positive absorption. The Waltham Woods Corporate Center in Waltham garnered the highest rent of 2003 locally, with $31 per square foot. The forecast for 2004 is that velocity will continue; however, Meredith & Grew Executive Vice President James L. Elcock said the big question will be what space they left behind and how much the company grew. Bifurcation between the Class A and Class B markets will continue and absorption will once again remain positive, he predicted.
Commenting on another facet of the industry, Meredith & Grew Executive Vice President Lisa M. Campoli said 2004 will see an increase in investments. With cheap debt and signs of a recovering economy, the market also will see more sellers, she said.
“We’re at a really special time in terms of investments,” Campoli said. “There’s a lot of capital, inexpensive debt and a recovering market. In 2004, we’ll also see more sellers. It’s a great time to be in the business.”
Kristie DiSalvo may be reached at kdisalvo@thewarrengroup.com.
