by Jennifer Keller is a Director at HFF
Boston remains one of the top 10 U.S. Markets to Watch for investment and is ranked #1 in the Northeast Region, according to the Emerging Trends in Real Estate 2017 report, from the Urban Land Institute (ULI) and PwC. The report identifies the growth of technology, financial, and healthcare industries as key factors, in addition to the city’s world-class colleges and universities, driving Boston’s competitiveness relative to other markets nationally and internationally. These factors are not new or surprising. But, there are several other considerations presenting opportunities and challenges to the Boston real estate market. For the purpose of this column – and an upcoming discussion at ULI Boston/New England’s 2017 Trends event– let’s examine three perspectives: those of the tenants, the talent, and the titans.
Tenants are the foundation of cash flow in commercial properties, which ultimately drives investment. Consider the impact of these companies, which moved into the urban core from suburban – or out-of-state – locations: General Electric and Reebok. First, GE made a bold move from a suburban Connecticut campus to the Seaport District in Boston, arguably one of the most dynamic real estate submarkets in the U.S. Less than 12 months later, Reebok followed suit, moving 700 employees from Canton to the Seaport’s Innovation and Design Building. Conversely, New Balance demonstrated a commitment to its location in Allston/Brighton for over 35 years, by developing a new 250,000 square foot world headquarters. Each of these decisions has had a tremendous impact on the value of individual properties and overall dynamics in the commercial real estate market. Understanding these case studies and their ripple effects on the Boston real estate market, are critical to making future investment decisions.
Any examination of corporate tenants and their real estate decisions would be incomplete without looking at the availability of talent. Finding, attracting and retaining qualified employees is a significant challenge for every company. A company could offer Google-like perks such as shuttle service, juice bars, and dog-friendly workspaces, but office location is paramount for attracting the right talent. Additionally, a city’s affordability, access to transportation and land use choices, are factors people consider when taking a job and are crucial to determining the long-term viability of an employment base. Boston has a lack of housing that is affordable to a young, dynamic workforce but boasts great access to public transportation. Understanding how these factors will impact future investment in the city must also be considered.
Tenants and talent drive the viability of a property’s cash flow, but the future of commercial real estate in Boston will ultimately be determined by investors – or “Titans.” Boston is a world-class city, in high demand by regional, national and international investors. However, the field of competition has expanded in the U.S. beyond primary markets such as New York, Los Angeles, and San Francisco to include secondary markets such as Austin, Portland, Seattle, and Nashville. These, so-called 18-hour cities have become attractive to institutional investors by offering lower land cost, lower construction costs, strong rental growth, and higher investment returns. Understanding how major institutional investors view Boston’s ability to remain competitive relative to other U.S. markets will surely foreshadow how the investment community will react this year and beyond.
When we consider these perspectives, we can get a clearer vision of the future of Greater Boston’s real estate market.
Jennifer Keller is a Director at HFF