by Michael Hoban
In recent years, Boston and the surrounding area has emerged not only as a favored city among global real estate investors but as a magnet for relocation by tech and life science companies seeking to attract and retain young talent. ULI Boston/New England recently hosted a program, where panelists discussed the thought processes of the leadership of the companies and investors that are wagering heavily on the continued success of the region.
In a survey released in January by AFIRE (Association of Foreign Investors in Real Estate), Boston ranked third in desirability by foreign investors among U.S. cities (behind New York and Los Angeles), and for the past decade has consistently placed among the top U.S. cities in terms of investment dollars. Established companies and startups are attracted to the intellectual capital provided by its 55 colleges and universities, abundant venture capital, and the stability offered by the economic diversity of a regional economy based on technology, life science and financial services, as well as its internationally respected medical and educational institutions.
Investors represented on the panel included the Oxford Properties Group, a long-term holder of assets which acquired nearly three million square feet (278,710 square meters) of core Boston/Cambridge trophy properties for approximately $2.25 billion (USD) in 2015; and Alexandria Real Estate Equities, Inc., the life science and technology REIT that has 40 percent of its 25 million square foot portfolio located in the Boston/Cambridge market.
Oxford executive vice president Neil Jacob identified the educational institutions as the primary strength of the market from a long-term perspective but noted that Boston’s lack of diversity is troubling. “We have people coming in from Europe and they look around, and it’s not the most diverse population,” he observed.
Companies that recently relocated or significantly expanded their presence in the Greater Boston market comprised a second panel, and included athletic footwear manufacturer New Balance, travel website TripAdvisor, pharmaceutical firm Shire, and General Electric (GE), whose highly-publicized (and well-incentivized) relocation from Fairfield, Connecticut, to Boston was the biggest business story in the city in 2016.
Ann Klee, who heads up GE’s Boston development and operations, said the move to Boston was primarily about transforming the company’s identity from a 125-year-old industrial conglomerate into a digital company. “There was energy, there was talent and Jeff [Immelt], our chairman, talks about being in the ecosystem of innovation and ideas, and that was [what we wanted],” said Klee. “But another key factor that separated Boston from a lot of the cities that we looked at was the great political partnership between the [Republican] governor and the [Democratic] mayor and their respective teams. And the fact that they could actually work together and get things done in this day and age was a real differentiator.”
Despite the many pluses of Greater Boston, Klee and other panelists also acknowledged that the region has its fair share of issues, such as an aging infrastructure, transportation challenges, and a worsening problem with middle-income housing affordability. “I think the sticker shock for housing was more than we expected, and we underestimated how hard [the commute] would be for employees who don’t live in the city,” said Klee.
U.S. Congressman Seth Moulton echoed some of those concerns, citing a report by U.S. News and World Report that rated Massachusetts as the “best state” based on its academic achievement, innovative health care system, and strong economy, but ranked it near the bottom in transportation, road quality and commute times—as well as housing affordability and income inequality. “We failed miserably when it comes to transportation,” Moulton said. And although improvements are underway to improve the dreadful commute times on the Mass. Turnpike, which brings auto commuters into the revitalized downtown and the developing Seaport district, “We need to be making transformative investments in our infrastructure,” he said.
Moulton has been a strong advocate for one such investment, the proposed $2.1 billion (USD) North-South rail connection, which would consist of constructing a pair of rail tunnels, each about 1.5 miles (2.4 km) long, that would connect North and South Stations in downtown Boston. The city is currently served by two commuter rail systems, one extending to the north of the city, the other to the south, but they are not connected, and neither is fully linked to the existing subway system. Completion of the connection would not only improve commute times into and within the city, but would also create further housing and development opportunities, said Moulton.
Transportation improvements played a large role in the development of Boston Landing, the new campus of New Balance. Through a public-private partnership, NB constructed a commuter rail stop—scheduled to open in May—on the Framingham/Worcester line that runs from South Station in Boston through the western suburbs to the City of Worcester. It is the final piece of the development puzzle, as the company has transformed a 15 acre (6.07 HA) light industrial site bordering both Boston and Cambridge into a complex featuring a new world headquarters building; 650,000 sf (60,387 sm) of office space with ground floor restaurant and retail space; a 175-key boutique hotel; and a state-of-the-art sports complex that houses training facilities for Boston professional basketball and hockey teams. The new office space is expected to draw both tech and life science tenants from the tight Cambridge market.
Shire, the state’s second-largest biopharma employer (3,000-plus), had expanded its campus in the suburb of Lexington multiple times, growing to over one million sf (130,065 sm) in early 2016 before signing a lease in November for 343,000 additional sf (31,866 sm) in Kendall Square – generally considered the biotech/pharma research capital of the world. “For us to have an opportunity to expand our presence [in Cambridge] and be near the universities [MIT, Harvard] while keeping Lexington and all the things that we do there [manufacturing, distribution, research], was really kind of a game-changer for us to have the best of both worlds,” said Michael Connor, Shire’s head of real estate.
While most tech firms would prefer to located in the heart of downtown Boston or in Cambridge, TripAdvisor decided to take the cost savings gained from locating in the Boston suburb of Needham, where over 1,000 of the company’s 3,000 employees are headquartered, and invest in their campus. “We knew would have to create an ecosystem within the suburbs that would replicate what is going on in the cities, so we took that cost savings, amenitized the hell out of [the campus], and created a wonderful place where people want to come every day,” said Kurt Ochalla, TripAdvisor’s real estate director.
While Greater Boston must decide how to address its longer-term challenges, the market remains a darling of both investors and employers.