'07 Forecast: real estate
Redevelopment, roads and new permitting rules spark optimism
By Phyllis Hanlon
A major revitalization of downtown Worcester and the development of Route 146 will help anchor the steady growth in commercial real estate in the city and region through 2007, say local brokers and owners. In the larger region, increased interest on the part of commercial real estate investors new to the area, coupled with streamlined permitting processes, are presenting new opportunities for 2007.
In Worcester proper, the $583 million CitySquare project downtown promises to bring new commercial life to a 20-acre parcel on the site of a former shopping mall. CitySquare will fuse mixed-use office, residential and commercial space to create a 2.1 million-square-foot urban district across from Union Station.
"We are seeing changes that will add to evening and weekend activities," says Peter Kovago of Glickman Kovago & Co., the firm negotiating retail deals for CitySquare. Those changes enhance Worcester’s image and prompt interest from other commercial developers and investors, he says.
The Worcester area commercial real estate market in the has grown slowly but steadily since 2001, unlike the eastern part of the state, which saw greater market fluctuations during that time, says John McKinley, principal at Kelleher & Sadowsky Associates Inc.
James Umphrey, principal at Kelleher & Sadowsky, says that owner-occupied buildings – far more prevalent in the Worcester market – account in part for this high stability. Within the Route 128/I-495 belt, far more commercial space is non-owner occupied, and can be offloaded quickly – creating a more dramatic cycle that affects pricing.
The office lease rates east of Worcester were as high as $30 per square foot in 2000, but after falling as low as $18 for the same space, have settled between $23 to $25.00 per square foot. The rates in Worcester ranged from $16.50 to $18 per square foot in 2000 and have climbed to between $19 and $25. The reason, says Umphrey, is supply and demand: The 495 market is much bigger, and has greater vacancy in terms of percentage.
Changes downtown should have far-reaching effect |
Worcester’s revitalization rests on creating a viable downtown, say investors, developers and officials. Several completed, in process and future projects form the core of that revitalization.
One of the brightest spots is the Massachusetts College of Pharmacy and Health Sciences, which employs 125 staff and serves more than 400 students from its Foster Street campus - right across the street from CitySquare.
MCPHS’ large influx of students, combined with the students of the other local colleges, brings a prime opportunity to the city, says Howard Katz of The Katz Companies. The retail stores, entertainment venues and dining spots of the planned CitySquare development should draw a large audience of them downtown.
The revitalization downtown could also attract additional commercial presence downtown, says John McKinley, principal of Kelleher & Sadowsky Associates Inc. Large companies searching for a corporate headquarters will take a second look at Worcester once the area is well populated with restaurants and businesses, the lack of which has deterred companies from locating here in the past, he says.
Many see the election of Worcester Mayor Timothy Murray’s to lieutenant governor holds untold possibilities for the city’s future. "It’s an economic win for Worcester," McKinley says. Having a strong partner in the corner office could place Worcester at an advantage. "Funding and political and economic support will be better than ever," McKinley says.
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Attractive leasing rates have boosted occupancy in many of Worcester’s commercial buildings. Occupancy is full or nearly full in Chadwick Square, Park View Place, Chestnut Place, and the Guaranty Building, says Umphrey. "Signing a lease with a company not located in suburban office buildings has been a really positive trend," he says.
Worcester is an ideal distribution hub between Boston, Hartford, and Providence, Umphrey says, particularly because of improved access to the Massachusetts Turnpike and Route 146. "It’s cheaper on all fronts," he says. "With cooperation and investment in projects from the city, Worcester could be a major player."
Another major stabilizing force in the local real estate market is the lack of oversupply, say Katz Cos. President and CEO Howard Katz. "New construction wisely mirrors demand," he says.
This has helped real estate brokers match clients with the "right" kinds of properties, he says. A case in point, he says, is the Price Rite Market on Gold Star Boulevard, in the space formerly occupied by a Shaw’s supermarket. It represents that chain’s first foray into the Worcester market – and a strong location for it, he says.
New kid in town
Commercial real estate companies are increasingly interested in Central Mass.
One of the area’s newest players, West Roxbury-based Equity One, recently bought Webster Plaza for $17.8 million. The 200,000-square-foot shopping center along Route 12 includes anchor stores Kmart and Shaw’s, as well as smaller retailers.
Although Equity One has had a New England presence since 2003, the Webster Plaza deal fits into the company’s strategy of expanding its holdings here, particularly joint ventures and grocery store-anchored center, says Alan Merkur, senior vice president and director of transactions.
Equity One focuses looks for partnerships with cash-strapped local developers familiar with the area, and supplies money and leasing expertise once a suitable location is found. "We capitalize on each other’s strengths," Merkur says. The company is prepared to invest $300 million in the Northeast if the right opportunity presents itself, and has "planted seeds" deal-wise that Merkur says should flower in 2007.
Lack of open space leads to renovationsThe dearth of open land in Worcester remains a major impediment for large-scale growth, says James Glickman of Glickman Kovago & Co. "Between Boston and Worcester, for more than 50 years, there’s been open land. With the population growth along Route 495, a fair amount of that land is gone now."
Scarcity has lead some developers to renovate some of the existing mill style buildings common in the area. WPI’s Gateway Park project on Prescott St. is one of a number of examples, Glickman says.
But renovations can be just as troublesome, as outdated industrial buildings pose unusual challenges. "Some of these mill buildings are obsolete," says McKinley of Kelleher & Sadowsky. "The cost of demolishing them and adhering to environmental requirements makes cleanup costly. You have to justify acquisition cost. Otherwise it’s better to buy in the suburbs."
New permitting rules should
attract new businesses
The state’s newly passed voluntary streamlined permitting law, for which Worcester was one of the first adopters, which should help draw more businesses to the area, and create more attractive opportunities in the commercial real estate market.
The new regulations, passed in August, cut the timeframe for permitting requests to 90 days, a substantial drop from the 12 to 18 months it typically took, says David Begelfer, CEO of the Massachusetts chapter of the National Association of Industrial and Office Properties (NAIOP).
The regulations also set up a special session land court that will hear cases involving projects larger than 25,000 square feet of 25 housing units. Begelfer says the changes should shorten the appeals process to less than one year, instead of the current four years.
A look at the future
Greater Worcester real estate professionals expect a strong year in 2007, because of more business-friendly permitting rules and a nexus of downtown development. "We are optimistic," says Kovago of Glickman & Kovago. "The market is stronger now than it was six months ago."
Katz says that Central Massachusetts’ best days are still ahead. "All the fundamentals are there. We have product, attractive pricing, improving infrastructure. As the Route 146 Connector is completed and as the state government brings in more rail service to Union Station, we’ll see better days."
Many of the developments will impact the commercial real estate market here for years to come, Katz says. Worcester’s new courthouse, for instance, should serve as a major drawing point for Boston law firms, he says. Katz anticipates a real estate rush as out-of-town businesses scoop up much of the currently available space, making the market tighter for office and industrial space in 2007. "They’ll want to bring business here and establish offices here. This is the last opportunity to take full advantage of attractive office rents in the Worcester area," he says.
Barring any unforeseen fluctuation in the market, 2007 should be another breaking year, he says.
Phyllis Hanlon is a freelance writer. She can be reached at polishpen@mac.com
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