2014 Outlook: Slower Growth For Boston, But Still A Banner Year

by Carlos Febres-Mazzei, Senior Vice President/Partner with CBRE/NE’s Debt & Structured Finance team

Febres_CarlosJust a year ago, I submitted an article to the Banker & Tradesman with some ideas as to how the commercial real estate market would play out over the course of 2013. At the time, Mayor Thomas Menino had yet to announce his retirement, the 10-year Treasury wiggled around 1.8%, and Boston was one of a select few markets to be considered a safe bet by investors. To be sure, 2013 was a year of change for us and the rest of the country.

Some of the focal points in last year’s outlook played themselves out in an interesting way; let’s take a look:

Theme 1: Interest rates will creep up, but not enough to affect asset pricing or transaction volume. 

TRUE. We actually saw the 10-year Treasury teeter between 1.8 and 2.0%, before dropping to 1.6% in May. After some comments by the Fed chairman about an imminent tapering program, fixed income markets freaked out, and the 10-year rate widened by 100 basis points in six weeks. However, the increase had little-to-no impact on core asset pricing. Why? In part, it was due to borrowers switching to shorter-term deals with lower index rates in order to maintain the same yields. For core product, there was simply too much equity capital chasing high-quality deals to affect pricing, and investors were prepared to accept lower returns versus losing a deal.

Theme 2: Maturing loans will be refinanced with ample debt capital and an increase in CMBS. 

TRUE. Over $13 billion of CMBS matured in 2013 nationwide, in addition to maturities from banks and other lenders. CMBS lenders originated about $86 billion in the U.S. last year, an increase of $38 billion from 2012, which was enough to refinance 2013 maturities three times over.

Theme 3: Development in the office and hotel sectors will help to balance the wave of apartment projects under construction. 

TRUE (sort of). New development of office buildings finally began in 2013, following a series of mega-deals in the office sector, where some major old-line tenants signed large build-to-suit leases in Boston (see State Street, PWC, Goodwin Procter) and in Cambridge (Pfizer, Millennium). Boston Properties looks to be ready to start on Boylston Street as well. We saw new hotels break ground with CV Properties’ twin concepts in the Seaport, and more projects to come in Cambridge, the Back Bay and other neighborhoods. Three of the four development firms mentioned in last year’s article have broken ground on various deals outside the apartment sector.

For the complete article, click here to be directed to the Banker & Tradesman website.

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The Cranes Have Returned – Cambridge BTS Activity

CBScoop_CambridgeConstruction_map

by Suzanne Duca, Director of Research
With more than 2.2 million square feet of office space currently under construction, over 800,000 square feet scheduled to break ground in 2014, and an additional 4.6 million square feet expected to break ground in the next 2-3 years, cranes have returned to change the Cambridge landscape.

  • Organic growth from local companies like Biogen Idec, Broad Institute, Millennium: The Takeda Oncology Company and ARIAD Pharmaceuticals are fueling build-to-suit demand
  • Space utilization trends combined with lack of big block inventory in East Cambridge are forcing tenants to continue to consider build-to-suit options
  • The desire for geographic continuity is outweighing ‘above-market’ rents associated with new construction
  • There has been an industry-wide shift to lower lab/office ratios, causing base building infrastructure to be carefully considered

 

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How the World Sees Boston’s Booming Real Estate Markets: An Urban Area Moving Forward

Collins_Webby Web Collins, Executive Vice President/Partner of CBRE/NE’s Valuation & Advisory Group

With CBRE’s worldwide reach, I never know what the next telephone call or email will bring. This article is the result of recent assignments with very far-thinking real estate people, both within and outside of Boston. This article will address Boston from “the outside looking in” and conclude with the likely state of the market in 2014.

How The World Sees Boston

Beyond its well-known 24-hour city characteristics and the impacts of its educational institutions, what investors see is not a city made of 10 submarkets. They see the city of Boston as an urban area moving forward at a pace not seen in decades.

Investors see the city as having great vision in its setting of a forward-thinking urban fabric years ago. The city of Cambridge performed this changeover in the 1970s and 1980s with East Cambridge being the primary focus. The city of Boston had its changeover with the “Big Dig” in the 1990s-early 2000s.

East Cambridge and the Seaport are looked at as an integrated whole. They comprise some 2,125 acres of land, and an existing inventory of office/lab space of 31,600,000 square feet, which is expected to grow to over 50 million square feet of mixed-use space within 10 years. What Boston has is effectively a “city within a city.” The combination of East Cambridge and the Seaport are an integrated whole.

The only other places in the world where you find “cities within cities” are Canary Wharf in London, Hong Kong and perhaps Playa Vista in Los Angeles.

To read the rest of the article covered by New England Real Estate Journal, click here.

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TUGG’s Eighth Annual Tech Charity Party

TUGG PartyCBRE/New England is excited to be a sponsor of TUGG’s Eighth Annual Tech Charity Tequila and Wine Party! Over 1,200 of Boston’s best tech entrepreneurs, VCs and philanthropists will be joining to raise $300,000 to support seven new non-profits. Click here to register for the event, which will be held at 6pm on March 13th at Royale Nightclub.

To join in TUGG’s (@tuggorg) tweet up today from 2-5pm, use hashtag #TUGGwp14! The seven startups can also be found on Twitter: @BUILDinBoston, @caties_closet, @DocWayneDtG, @DoctorErika, @RightsideShirts, @QuestAdventures, and @JRISocialJstce.

TUGG is dedicated to catalyzing and spreading social entrepreneurship in New England. Learn more about them at tugg.org.

 

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2014 CBRE/New England Hartford Market Overview Highlights

CBRENE_HMO2014Thank you to all those who attended the CBRE/New England 2014 Hartford Market Overview on January 17th; we hope you found the event both informative and entertaining. For those who missed it, below are a few highlights from the event. Due to popular demand, we are also releasing a copy of the slide presentation. Click on the image on the left to view.

CBRE/NE’s Jeff Livingston welcomed the audience, which included Mayor Pedro Segarro, and keynote speakers: University of Connecticut President Susan Herbst and Wintonbury Risk Management’s President and Founder Ed Guay. Jeff also took a moment to congratulate local real estate icon, mentor, colleague and friend, Bill Farley, on his official retirement. Susan Herbst gave an overview of UCONN’s goals and objectives for the coming years including an update on the progress of Jackson Lab’s development at the UCONN Health Center in Farmington and the University’s new STEM program. Susan also spoke about the school’s decision to move its West Hartford campus downtown and the positive impact it will have on Hartford’s future. Next, Ed Guay provided an extensive overview of the national economy and what current trends and events will have the most impact on the commercial real estate market in 2014. A short Q&A session followed each of the keynote speakers.

The second half of the event included short presentations by four of CBRE/NE’s Hartford Office brokers, including Patrick Mulready, John McCormick, Michael Puzzo and Christopher Metcalfe. Pat Mulready gave an overview of the Investment Sales market in 2013, highlighting major transactions, while John McCormick talked about the City of Hartford’s efforts to build a “Live, Work, Play” foundation in the CBD and also recapped some of the more significant transactions that took place in 2013. Mike Puzzo gave an overview of the Suburban Office market, with an emphasis on the changing workplace, and Chris Metcalfe presented a synopsis of the Greater Hartford Industrial market with highlights including major transactions and a forecast for continued strong build-to-suit activity.

Jeff Livingston closed the program by inviting attendees to remain after the program for continued discussion and individual Q&A.

Look out for future posts from CBRE/NE’s featured speakers giving further insight on their respective topics.

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Embracing Young Professionals: The Key to Future Success for Hartford Employers

Hartford, CTby Tina Briggs, Marketing Associate at CBRE/NE’s Hartford Office

As the Baby Boomer generation continues to age and subsequently drop out of the workforce, today’s employers are faced with the challenge of filling the holes left by these experienced professionals. However, it’s not as simple as just hiring a replacement. Companies now need to build a foundation upon which to preserve the long-term viability of their organizations. This increasingly means turning to the younger generations, as well as those about to enter the workforce, and embracing these young professionals (YPs) as the future of business.

While many firms already recognize that attracting and hiring YPs is vital to future success, not all understand how to go about this. “YPs are changing consumer trends, and local developers are paying attention,” writes the Alliance’s Julie Daly Meehan in a recent article published by the Hartford Business Journal. Many factors play into it, from the layout and culture of the workplace to the amenities and offerings in the surrounding community. The City of Hartford has already taken the first steps; striving to become a center of “Live, Work, Play” by creating affordable places to live, supporting Hartford-based employers and by providing a variety of places to eat, ways to get around, and fun things to do. With close to 1,000 new market-rate studio and one-bedroom apartments under construction, new restaurants like Panera Bread, Sorella and Ted’s Montana Grill, and new entertainment venues like Spotlight Theaters and Infiniti Music Hall & Bistro on Front Street, as well as reinvented night-life establishments such as The Tavern and The Russian Lady, Hartford is off to a good start. The new housing and retail will make living and working downtown more attractive, but Hartford employers need to take this one step further. Today’s YPs are looking for something different.

A majority of the interns I have mentored over the past several years say there just isn’t much going on in Hartford and opt to start their careers in more “hip” urban locales such as Boston and New York. We need to change this mentality, and I think Hartford has the potential to be a place where YPs want to be. If Hartford employers want to attract and retain YPs, they need not only to support economic-based initiatives to expand the “Live, Work, Play” concept, but they need to provide a working environment that is on par with the YP mindset. YPs are looking for a modern, bright and open workspace, in addition to incentives like free or subsidized parking, competitive salaries, affordable places to eat lunch and things to do after work. They also want to be valued for their ideas and seem to work best in a collaborative environment. Employers can achieve this by adapting to create a culture where openness, sharing and creativity are welcomed, and by providing opportunities where socially active, community-driven YPs will excel.

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Boston Market Overview 2014 Slides

BMO 2014 Slides

By popular demand, we are releasing the slides from last month’s Boston Market Overview. Click the image to view the slideshow.

 

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