A Breakdown of NAIOP’s Mid-Year Market Roundup

By Liz Berthelette

This morning NAIOP Massachusetts hosted its annual Mid-Year Market Roundup. The expert panel presented to a packed-room of real estate professionals; covering topics related to the economy, local and national property markets as well as capital markets. A common theme throughout the presentation was “slower, but not slow.” Below are just some of the key takeaways from today’s event:

Putting their heads together to boost productivity

Economic Overview – Hans Nordby

  1. In terms of a recession, it’s not if but when. Leading real estate forecasting and analytics firm; CoStar Portfolio Strategy, is predicting a recession will occur within the next three years. However, the impending downturn should be much milder than the Great Recession of 2009.
  2. Several economic indicators remain positive. Corporate profits have been positive in the last three quarters, the unemployment rate is at a 17-year low and real wage growth (accounting for inflation) is as good as it was in the previous two cycles.
  3. CRE prices are bobbling at new peaks. While prices are not rising, they aren’t necessarily falling either. Locally, the tide is going out very slowly in Boston so values should remain pretty solid.

Microscope

Cambridge/Lab Market – Evan Gallagher

  1. Biotech has seen a renaissance and Cambridge is the new Florence. Moreover, the epicenter of biotech (Kendall Square) is shifting and expanding to meet the needs of tenant demand.
  2. The market is seeing some consolidation in the pharmaceutical industry; as one company expands another contracts. Other challenges include the soft IPO market, FDA scrutiny and lack of talent.
  3. The Cambridge office market is cooling and the breakneck pace of rent growth is likely behind us. Tech companies have gotten squeezed by the lack of space and rising rents; leading tenants that remain in Cambridge to downsize by 20-35% upon renewal.
  4. While there has been some success in the suburban lab market, one major roadblock remains: hiring. The lack of amenities and transit, compared to Cambridge, make recruiting difficult.

Retail

Retail – Andrea DeSimone

  1. Is this the death of retail? One might think so given the store closure watch list continues to grow, but it may not be time to hit the panic button yet. Leases will happen; they may just take longer and require more creativity.
  2. E-commerce continues to thrive, as its share of total retail sales remains on an upward trajectory.
  3. Innovative experiences, fitness, the restaurant scene and food halls are active retail sectors right now.

Beautiful view of the city of Boston

Downtown Office – Ben Heller

  1. Over the last 10 years, the office market has experienced disruptive changes – driven by technology and changing workforce demographics.
  2. How has Boston evolved in the past decade? The city is now on the global HQ map, premium locations have shifted and the definition of core product has changed.
  3. Downtown office asking rents are 11% above the previous peak and vacancies are still near 15-year lows.

Multifamily

Multifamily – Sue Hawkes

  1. The Boston multifamily market is still seeing price appreciation, but the pace of growth has slowed.
  2. Transit is hugely responsible for the success of multifamily product in more tertiary markets (i.e., Somerville and East Boston).
  3. Amenity wars are alive and well while some tenants are moving every year in order to take advantage of concession packages offered in the newest buildings.
  4. Affordability is a major factor in Boston; lack of affordable housing will most likely impact Boston’s labor market.

urban waterfront skyline seen from Boston Harbor

Capital Markets – Edward Maher

  1. The capital markets are not as quiet as you think. While sales volume is down 18% year-over-year in Boston, these levels are still solid compared to previous years.
  2. Foreign investors perceive Boston to be one of the best places to do business. However, there is very little inventory available for purchase.
  3. The buyer pool is thinning and overall pricing is flat in Boston.
  4. Looking to the future, the action will be concentrated in the suburbs. With that said, the suburbs remain untested waters. Moreover, foreign capital remains “snobby,” and likely won’t stray too far from core, downtown assets.

Overall consensus on the Boston market was still positive despite some risks to the near-term forecast.

Liz_Berthelette

 

Liz Berthelette is NAI Hunneman’s Director of Research. You can learn more about here on her bio or follow her on Twitter at @liz_berthelette.

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