Brokerage Outlook: Massachusetts

• Boston Multifamily

• Boston Office

Boston Multifamily Submitted by Michael Girard, investment broker, and Richard Robinson, principal, with the Boston office of Apartment Realty Advisors (ARA). Posted online 12-16-05. What area is your expertise? • Boston, primarily, as well as Massachusetts and New Hampshire. Secondary expertise: Maine, Rhode Island, Connecticut, and Vermont. What trends do you see presently in multifamily development in your area? • We see national developers targeting Boston (in addition to the local developers) because of the high barriers to entry and the strong rental market. Who are the active multifamily developers in your area? Avalon, JPI, Archstone, Finger, Hanover, Abbott Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? • Archstone is building some components of a large mixed-use redevelopment project in Cambridge with a line of sight to Boston. This Northpoint development encompasses a few thousand apartments and condos. It is along the Charles River and has views of the city. It is the redevelopment of the old Guilford Railroad site. Where is the majority of development taking place? Why is this area doing well? • Sites adjacent to commuter rail, subway stops and/or other transportation points are being targeted for development with more frequency. With today's construction techniques, the buildings can be constructed very close to the rail line. We expect this trend to continue, particularly with the advent of Massachusetts Chapter 40R. 40R is legislation that allows communities to work hand-in-hand with developers to define special zoning for housing along transportation points, and in turn the state provides financial incentives to the town. There are per-unit and infrastructure incentives from the state that the town can receive upon completion of these projects. These sites allow for high-density, mixed-use development rather than suburban sprawl. What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing? • Some pockets in the Northshore have been hit with a lot of new apartment units, affecting this market’s overall occupancy. Gradually these units are being absorbed. There are areas where concessions are still being used. Downtown Boston has seen a recent increase in occupancy with the return of the student market for fall. The Fenway neighborhood of Boston for example is hovering between 98 and 100 percent occupancy. Please give a measure of condo sales activity in the area. • Quincy, in the South Shore market, has seen significant new residential construction and several condominium conversions. In 2004, condominium sales volume was 438 units. In 2005, YTD condo sales volume is 576 units. What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in 2006? • The condominium sales volume may see a plateau or a slowdown as the interest rates rise. The result may be increased occupancy for apartment communities. What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market? • Those submarkets such as Hudson, Massachusetts, with a significant basic employment base that have firms such as Intel planning significant hiring (200 to 300 new jobs), may see additional household creation and increased apartment demand.

Boston Office Perry Submitted by Ronald K. Perry, executive vice president of Boston-based Meredith & Grew. Posted 12-16-05. click here to see charts What area is your expertise? • Boston (Downtown Market) What trends do you see presently in office development in your area? • Further stabilization in rental rates, along with a continued favorable interest-rate environment will trigger the commencement of a number of projects currently in the Boston pipeline. Most notable are: Russia Wharf/530 Atlantic Avenue (Equity Office Properties 1 million-square-foot mixed-use project) and Fan Pier (Joseph Fallon and Cornerstone Realty Advisors 3 million-square-foot development.) Who are the active office developers in your area? Active office developers include Joseph Fallon, Equity Office Properties, Boston Properties, and Beacon Capital Partners. Please name one or two significant office developments in your area. What impact will these projects have on the market? • Russia Wharf, 530 Atlantic Avenue, Boston Financial District (Equity Office Properties). Russia Wharf is a 1 million-square-foot project that will include approximately 500,000 square feet of office space as well as a residential and retail component with a projected delivery date in 2009. • Fan Pier, 28-70 Old Northern Avenue, South Boston Waterfront (Joseph Fallon and Cornerstone Realty Advisors). Fan Pier will include a 1.3 million-square-foot office component. The total project size will exceed 3 million square feet. Where is the majority of development taking place? Why is this area doing well? • The majority of development is occurring in the South Boston Waterfront submarket. The area is undergoing a transformation from predominantly industrial to a dynamic, mixed-use hub of activity surrounding the Boston Convention and Exhibition Center, which opened in June of 2004. According to the Boston Redevelopment Authority’s South Boston Public Realm Plan, there is currently 17 million square feet in the South Boston Waterfront with 22 million square feet of new development envisioned. What area do you expect to be the next big development market? Why? • The South Boston Waterfront submarket is an emerging 24-hour neighborhood with a mix of industrial, retail, residential, commercial, and civic uses. Approvals have been given for more than 2.5 million square feet of office development in the area and another 500,000 square feet are either under review or in the planning stages. Construction is underway for more than 2,000 hotel rooms with another 1,000 rooms approved or under review. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • There has been more than 1.4 million square feet of positive absorption through the first three quarters of 2005 in Boston. The majority of this has come from the Financial District (537,000 square feet), Back Bay (476,000 square feet), South Boston Waterfront (279,000 square feet) and Charlestown (260,000 square feet) submarkets. Please give a measure of office vacancy rates. Please give a measure of available sublease space. • Overall vacancy in the Boston office market is 14.2 percent as of September 30, 2005, including 11.3 percent for direct space and 2.9 percent for sublease space. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006? • The combination of low interest rates, highly competitive equity capital and a dramatic rise in construction pricing have contributed to a continued upward movement in asset pricing. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • Employment in the office-using sectors of the economy (professional and business services, financial services) have been improving. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in 2006 to absorb a great deal of office space? What areas will be affected? • Other than Partners HealthCare, which absorbed 191,000 square feet in Charlestown and 35,000 square feet in the Back Bay, the majority of absorption in 2005 was from firms in the legal, financial and professional services firms — the type of office tenant that has traditionally dominated the downtown market. The sweet spot in the market this year, however, has been tenants in the 20,000-square-foot range.