WORCESTER BUSINESS JOURNAL – Developers understand that real estate is cyclical. The cycle we’re entering is similar to what Greater Boston markets have experienced before. Companies large and small are moving from high-priced space in the city and nearby markets toward more cost-effective sites in suburban areas such as I-495 and MetroWest.
Since the 2008 credit crisis, the economy has experienced consistent, albeit sluggish, recovery, creating ample opportunities for tenants, small local businesses, real estate owners and investors.
In recent years, rents for Class A — or top of the line — office space in Boston and nearby communities such as Cambridge have seen prices skyrocket well into the hundreds of dollars per square foot, driving companies from these urban areas. Initially, tenants looking for Class A space found shelter in the Route 128 belt, which provided many of the same amenities found in Boston, but cheaper.
But according to research done by Colliers International, absorption rates in the Route 128 market increased more than 200 percent between the second quarters of 2013 and 2014, forcing rents upward. Current rents for Class A office space in the 128 market range from the high $20s to low $40s per square foot. This is causing tenants searching for Class A space to seek cheaper alternatives.
The 495/MetroWest market is one of the last remaining submarkets that still provide companies with attractive solutions. Current rent prices within this market range from a more modest $17 to $22 per square foot. Rents within the I-495 area before the credit crisis peaked at $27 to $30, so there is still tremendous value there.
Certain communities, such as Marlborough and Westborough, have been at the forefront of the recovery in the I-495 market. Marlborough’s and Westborough’s economic development committees, working with municipal officials, have made a tremendous effort to bring large, prominent businesses to MetroWest. Recent examples include Genzyme, which signed a seven-year lease for 114,000 square feet of space at One Research Drive in Westborough. And Marlborough shook off the 2011 exodus of Fidelity Investments when TJX Cos. bought the property once occupied by the mutual fund giant and moved 1,600 employees into the city.
Officials in both communities recognize the positive impact such real estate transactions have on local businesses. Their willingness to work with property owners to ensure quick turnaround times when buildings need upgrading or expansion provide a positive experience, which fosters continued growth.
MetroWest real estate owners and investment firms are responding by acquiring older office buildings and refurbishing them to their previous Class-A statures. These new owners and investors are buying at massive discounts as they look to protect and diversify their assets. This allows them to plow significant capital back into these buildings to modernize and customize them to tenant needs.
My businesses, Ferris Development and Ferris Capital of Marlborough, have been acquiring local Class A office buildings since 2010. The most recent transaction, One Research Drive in Westborough, was bought at just a fraction of the building’s 2005 sale price of $55.5 million. Aggressive capital campaigns to upgrade common areas have attracted major tenants, including Genzyme.
The next few years will likely mean higher sale prices and rents as office buildings fill up again as businesses inside Route 128 look west for lower rents, less traffic and better “quality of life” options for their employees. Investors who are shrewd enough to capitalize on one of the biggest cyclical opportunities in MetroWest real estate in decades will be rewarded handsomely.
Meanwhile, local small businesses stand to gain, too. Construction upgrades in the region suggest a major rebound ahead for the broader local economy. Each new lease brings with it significant new work for local plumbers, masons, carpenters, electricians, landscapers and telecom installers.
This editorial by David Ferris originally appeared here.