Asset acquisition is one of the commercial real estate fields continuing to generate activity.
It wasn’t half bad.
While perhaps damning in the manner of all faint praises, that assessment may be the kindest possible for Greater Boston’s commercial real estate sector during the first six months of 2003. The industry collapse which began quietly in the waning days of 2000 has shown little sign of reversal, with tepid demand for office space and a wobbly economy further shaken by the war in Iraq.
The apartment market saw additional bumps in vacancy, while several investment sales fell apart after months of strained negotiations and nerves frayed by plummeting cash flow projections.
Even with that murky backdrop, however, there was a bit of light shining through the first two quarters of the year, including a greater willingness among landlords to cut rents enough to complete a deal, and to provide a range of flexible terms and amenities to capture or retain a tenant. Concessions are particularly available in the suburbs, where free rent and greater fitout allowances have returned to a level not seen in more than a decade. That environment led to several small- to mid-market leases in the first six months, as well as a few six-figure agreements such as Zoll Medical in Chelmsford and Goulston & Storrs in Boston.
“Tenants have an awful lot of leverage right now, and the landlords are recognizing that,” concurred CB Richard Ellis/Whittier Partners principal Christopher P. Tosti. “They are being very realistic about it.”
One firm that has benefitted from the situation is Linx Communications. Just a few years after being priced out of the Newton office market and shuttled into a temporary sublease block at the 9/90 Corporate Center in Framingham, Linx has just struck a direct deal for 10,000 square feet at the park’s 175 Crossing Boulevard, providing the company both a favorable rent and long-term stability.
Linx Vice President Paula Litscher recounted a far different space search from the one undertaken that led to the sublease deal. Despite the best efforts of her trusted brokers, John Boyle and Richard Fahey of Trammell Crow Co., Litscher said options were in extremely short supply and rents alarmingly overheated when Linx tested the previous market, with landlords unyielding in their pricing and barebones terms.
Conversely, Linx considered at least 10 potential locations in the latest market exploration, with a range of sublease, direct and turnkey deals vying for the tenant’s commitment. “We got a lot more interest from landlords this time,” said Litscher, who explained the firm was pleased in the end to strike a deal at its existing property, again using Boyle and Fahey to negotiate the deal. “We love it out here,” said Litscher, praising both the park itself and the surrounding Framingham/Natick market. All but a handful of Linx employees live in the area, said Litscher, while extensive retail and new options such as express bus service to Logan International Airport make the market even more attractive.
Strong demographics is one reason Framingham and Natick have weathered the economic downturn as well as any office submarket, with Tosti estimating that the area has an acceptable vacancy rate that has stayed between 10 and 12 percent. Save for a brief stretch in the early 1990s when office vacancies approached 50 percent, Framingham and Natick have always been steady performers on office space, said Tosti, who credits a core of solid companies such as Bose Corp., Genzyme and BJ’s Warehouse for providing a good grounding of activity in the area.
“It has always been lower than other submarkets,” Tosti said of the office vacancy rate. Local broker Scott R. Hughes of Hughes Properties Corp. cites a limited amount of available land as helping to keep office and flex buildings from expanding as easily in Framingham and Natick as in other MetroWest markets such as Marlborough and Westborough. That situation is now forcing large operations such as Bose and TJX Corp. to look outward to other communities for major expansion.
Another bright spot for commercial real estate can be found in the continued interest among investors to acquire assets. There has been particular desire for office buildings sporting predictable rents during the next four to six years, Spaulding & Slye Colliers investment specialist Jeffrey B. Swartz said recently, with that scenario keeping the guesswork out of future income forecasts.
“There’s a lot of activity and not a lot of product,” Swartz said in analyzing the first half of the year for investment sales. Several multi-family properties have changed hands, including the Gateway Apartments in Malden Center and the CambridgeSide Apartments in Cambridge, a 104-unit complex which traded early in the year for an impressive $231,000 per unit.
On the office front, Fairlane Properties in Boston has placed three well-located buildings downtown on the market, while the Hub’s 3 Post Office Square recently was purchased by Cornerstone Properties for $33 million. Trammell Crow has been active as well, including selling the land and buildings at Westborough Office Park in Westborough. Grocery anchored retail has been a hot commodity, as has industrial buildings. Nordic Properties, for example, paid $5.1 million to purchase a 175,000-square-foot industrial asset in Marlborough. The firm plans to renovate the single-story structure at 445 Simarino Drive into multi-tenanted industrial space.
