| For years now – decades, really – posh new condo towers and apartment high-rises have been the stars of the development scene in downtown Boston and its environs.
New corporate towers have been supporting actors at best, popping up here and there in the shadows of such headline–grabbling projects like Back Bay’s new 60-story One Dalton tower with its $40 million penthouse.
But as we head into 2019’s final stretch, that long-standing dynamic is starting to shift, and pretty dramatically at that.
Construction starts on new residential projects have plunged in the Boston area, even as developers push forward with some major new office towers and projects.
6M SF of Offices Underway
While there are still two months left in 2019, new construction of condos and apartments is roughly a third of what it has been over the past two years.
And for the first time since possibly the 1980s, commercial development is poised to take center stage in Greater Boston, from downtown to the suburbs, with several million square feet of space now taking shape.
“The story for 2019 is there are a lot of [office] projects that have been proposed or have broken ground in a big way,” said Peter Conway, a market analyst at CoStar Group.
Just how big?
So far, 2019 has seen developers kick off construction on more than 6 million square feet of new office, lab and retail space.
That’s up markedly from 2018’s still very large 3.8 million square feet.
And while lab space, which is in high demand given the crunch in booming Cambridge, accounts for some of the construction surge, much of it is office.
Work kicked off on the 43-story One Congress near Government Center in June, the tallest office tower to join the Boston’s skyline since the 1980s.
The 1 million–square–foot tower is slated to become the new headquarters of financial giant State Street.
Gov. Charlie Baker, Boston Mayor Marty Walsh, celebrate with representatives of WS Development, Amazon at the groundbreaking for Amazon’s new Seaport tower in May. So far, 2019 has seen area developers kick off construction on more than 6 million square feet of new office, lab and retail space. Photo by Steve Adams | Banker & Tradesman Staff.
In the Seaport, developers broke ground on a new office tower for Amazon, with plans by the tech giant to move 2,000 employees into the building when it opens in 2021, and a 17-story high-rise for Mass Mutual.
Now Hines, the Texas developer behind the long-stalled plan for an office tower and condo over South Station, is signaling it plans to move forward as well after decades of inaction.
Backed by an infusion of cash from Dutch investors, Hines is hoping to start work before year’s end on the 1.1 million square foot, 678-foot tower.
New Residential Activity Down
Beyond Boston, there have been a surge of office groundbreakings this year, as well.
Sanofi broke ground on two new buildings totaling more than 900,000 square feet in Cambridge, while construction launched on PUMA’s 303,000 square foot building in Somerville’s Assembly Square.
Over in Waltham, work kicked off on a new, 507,000-square-foot office building off Route 128 in Hobbs Brook Office Park.
Driving demand has been a dearth of major blocks of office space and the allure, for developers, of rents that are hitting the $100 per square foot range for the best tower space.
“The market for big blocks of space has become really tight,” Conway said. “There are none left, particularly in Cambridge.”
By contrast, groundbreakings on new condo and apartment projects, while still high by historical standards, have fallen off a cliff.
So far this year, developers have started work in 4,600 new residential units in the Boston area, down from nearly 12,000 in 2018 and 11,300 in 2017.
“Groundbreakings are down,” Conway said. “It is definitely down from what we had in 2017 and 2018.”
Whose Vision of the Future?
While rents and prices remain astronomically high, banks and other lenders have been cooling on new residential projects, especially luxury ones, for a while now.
With new gold-plated condo and apartment towers popping up on seemingly every corner, there are growing fears of a potential glut, not to mention what might happen should the long-awaited recession finally happen.
Scott Van Voorhis
Luxury rental units are seen as particularly vulnerable when the downturn finally comes, as it must.
New York has actually seen condo prices shift into reverse after an epic luxury building boom in the Big Apple.
And while there are some mega housing developments taking shape – such as plans for as many as 10,000 new homes, condos and apartments at the now defunct Suffolk Downs in East Boston – it could take another year or more before they make it through the city permitting and approval process.
So, what explains this odd contrast between bullish office developers and increasingly bearish condo and apartment builders?
They represent two very different bets being made on the real estate market in Greater Boston and where it’s headed over the next few years. Each is worth billions.
While developers of new office towers are betting on no recession, or a very shallow one, apartment and condo builders are clearly looking at the future a bit more warily.
Both sides can’t be right here. Only time will tell who comes up looking like a genius and who proves to have been a fool.
Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
