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The MetroWest/495 economy: slow and steady as it grows

WORCESTER BUSINESS JOURNAL – For years, the business community in Marlborough has been rooting for a new full-service hotel to support the lodging and event needs of corporate users in the area.

In March, that ship arrived when plans were filed to build a Hilton Garden Inn.

This rounds out a stretch of major commercial development in the city and brings a much-needed amenity to the new Marlborough Hills mixed-use development (formerly known as Forest Park) that recently became the new home of a major Quest Diagnostics facility. And just last week, General Electric’s health care and life sciences division announced it would locate its headquarters to Marlborough Hills, bringing with it about 500 jobs with plans to add at least another 220.

Tim Cummings, executive director of the Marlborough Economic Development Corp. (MEDC), said the Marlborough Hills developer and city officials always envisioned a hotel to complement business activities at the site, a former Hewlett-Packard campus.

While demand for lodging every Thursday through Sunday has been historically strong, Cummings said demand for weekday lodging has been growing, too.

“Some of the larger employers who have expanded recently have only strengthened the market,” Cummings said.

This Marlborough triumph speaks to a growing sense of optimism about the economy in MetroWest and along the Interstate 495 belt. That’s what was found in the second annual Business Climate Survey conducted by MetroWest495 Biz, along with the 495/MetroWest Partnership and Framingham State University (FSU).

But that optimism is tempered, with area employers reporting only modest plans to expand and hire this year. Paul Matthews, executive director of the 495/MetroWest Partnership, said that with the memory of the Great Recession still fresh, employers are proceeding “deliberately.”

“For a number of years now, we’ve heard from economists that this recovery is going to be slow but steady, and this (survey) bears that out,” Matthews said.

[CLICK HERE FOR A GRAPHICAL LOOK AT THE SURVEY RESULTS.]

What did the survey reveal? Here are three notable findings:

1. Two-thirds of business respondents see improvement over the next year

When asked, for instance, how the economy will perform in the coming year, a strong majority — about 69 percent — said it will improve. But most of those respondents — 64 percent — said they only expect slight improvement. Meanwhile, about a quarter of respondents said they expect economic conditions to remain the same this year, and about 6 percent said conditions will worsen.

Last year, slightly more respondents — about 75 percent — expected economic improvement. Michael Harrison, an economics professor at Framingham State who compiled the survey data, said instability reflected in key national economic indicators, such as gross domestic product (GDP), may be hindering the local outlook.

“We still have not seen a strong recovery across the board, and (and we) have been getting mixed results quarter after quarter,” Harrison wrote in a statement on the survey results. For example,

Harrison said GDP increased at a 2.6 percent annual rate in the fourth quarter of 2013, but then fell 2.9 percent in the first quarter of 2014.

“We have not seen a stable or sustained rise, so this may be a contributing factor to the decreased outlook,” Harrison wrote.

2. Small business a possible exception to hiring trend

But if area employers are reserved about economic conditions due to national trends, you wouldn’t necessarily know it based on their hiring plans. Harrison said it’s “very good news” that nearly 32 percent of firms said they will hire new staff this year, while another 31 percent say it’s possible, but too soon to tell.

Harrison noted that firms that are planning to hire run the gamut, from very small operations with nine or fewer employees, to large companies with payrolls of at least 500. And while more employers (5 percent) said they plan to reduce their workforces by at least 10 percent this year, compared with none last year, Harrison noted that the majority of those reductions will happen at small businesses, making the impact to the total area workforce relatively small.

“Overall, the number of reductions indicated (is) relatively small and should not significantly impact the 495/MetroWest region, if they (hold) true,” Harrison wrote.

Yet, Randy Waterman, president of Westborough-based Waterman Design Associates, was surprised to learn that more small businesses indicated they plan to cut staff this year.

Waterman, a survey participant, hired a civil engineer to his design firm of 14 employees last year, and may add another later this year or in early 2015. And the small-business clients he deals with are moving in the same direction as economic conditions steadily improve, Waterman said. He noted that a year ago, it was easy to find a machine operator to work on a project in a pinch. But today, more people are holding steady jobs.

“I think we can clearly say that this year was better than last, which was better than the last one,” Waterman said.

For Gavin Livingstone, president of Bryley Systems, a small Hudson-based IT services firm, hiring is already underway. Bryley will add a handful of new employees this year, as the company projects 25-percent growth in sales this year to its customers, most of whom are in Central New England.

“We’ve had a lot of momentum,” Livingstone said. “When I talk to our clients, I also get that sense of cautious optimism. Particularly in this region, they feel they’ve got a good thing going and expect it to last.”

Livingstone said his manufacturing clients, many of whom are local, are investing more in IT management since modern machines rely more heavily on computer technology.

The manufacturing industry has been doing particularly well, Livingstone said, despite the fact that it’s dwindled to a fraction of the size it was in its heyday. He sees clients expanding production frequently today.

“The ones that have survived … they’ve really got a niche nailed down now,” Livingstone said.

3. Location, location, location … and the costs aren’t bad either

A Hudson location ensures Bryley can reach its IT clients quickly in an emergency, and it seems that MetroWest and the I-495 belt offer an ideal location for a majority of area businesses, the survey results revealed.

Respondents said proximity to clients was the chief reason they located here, followed by affordability of real estate compared to prices in communities inside Route 128.

The cost comparison between the MetroWest and I-495 area and communities along Route 128 is detailed in market reports issued by the Boston commercial real estate firm Transwestern | RBJ.

Asking rents for Class A, top-of-the-line office space in the 495 West market, which includes communities from Marlborough to Natick, averaged $21.05 per square foot this summer, while those closer to Route 128, such as Newton, Waltham and Wellesley, averaged $33.24.

The savings is appealing, particularly to young companies. Matthews, of the 495/MetroWest Partnership, said it will give MetroWest and I-495 communities an important advantage in attracting new development in the coming years.

This will push prices up in the coming years, no doubt, but Craig Johnston, senior vice president at R.W. Homes Realty in Wayland, said the market will eventually experience a correction, pulling prices back down a bit. This happened along the I-495 belt in the early 2000s when the dot-com bubble burst, Johnston said.

But for now, the MetroWest office market will continue to enjoy a prosperous stretch.

This has resulted in a busier-than-usual summer for R.W. Holmes, which hired a new broker in the face of growing interest from tenants looking to shed their Route 128 digs for homes farther west, Johnston said.

“It’s a good time to find space out here,” Johnston said.

This article by Emily Micucci originally appeared here.