An interview with Philip DeSimone of Spaulding & Slye
Expansion needs of companies, both large and small, will boost the region’s office market for years to come, predicts says Philip DeSimone, senior vice president of Spaulding & Slye.
WBJ: How is commercial real estate faring in this region?DeSimone: In Metrowest alone in 2005, we saw seven major sales of office properties with the largest being a $55 million sale of One Research Drive in Westboro, a 284,000 square foot office building, to KBS Realty. Already, in 2006 we’ve had four significant transactions in the $9 million to nearly $19 million range. There’s a lot of capital chasing real estate now, even though interest rates have ticked up.
WBJ: What about the market for leased office space?
DeSimone: Last year was very busy in Metrowest, with nearly 300,000 square feet of net absorption, versus a ten-year annual average net absorption of 220,000 square feet. This reflects internal growth from companies like Staples, TJX and Iron Mountain. Also driving the market were companies moving into the area, as well as mergers and acquisitions. For example, Computer Associates bought Netegrity of Waltham and relocated operations to Framingham. Amica Insurance also consolidated Wellesley and Worcester offices in Westboro. This year, office space absorption was negative in the first quarter, largely due to Fidelity pulling out of one of its Marlboro buildings. Still, we will probably end up with positive absorption of office space in 2006.
WBJ: Where do you find the most activity?
DeSimone: Natick and Framingham have been very hot. Available office space there is only 10 percent. Much of this is due to the growth of major companies located there, such as Boston Scientific, TJX, Genzyme, Bose and Staples. Their suppliers also want to be near them and need space. When companies can’t find space in Natick-Framingham, they are migrating west to Westboro and Marlboro. As for Greater Worcester, I would describe both sales and leasing activity as slow but steady, but office space is rather tight—with only about 10 percent availability.
WBJ: What are you seeing in rents and sales prices?
DeSimone: Rents in Framingham-Natick are up 15 to 20 percent. Southboro is up about 10 percent. Westboro is up slightly, and Marlboro is flat. Per-square-foot leasing coasts are running about $25 in Framingham, versus around $20 for Westboro and $15 to $17 in Marlboro. In general, there’s been a trend for companies to move up in quality from Class B space to Class A. But there are plenty of other companies, such as startups, that are conservative in their space needs and do not want to overpay. On sales, we see prices ranging from $150 to close to $200 per square feet. A 96,000- square-foot building on 130 Lizotte Drive in Marlboro, occupied by Acosta, sold earlier this year for $195 per square foot.
WBJ: What type of office space is in greatest demand?
DeSimone: Most activity is in the 5,000 to 10,000 square foot range. Companies want a good location with ready access to highways. Increasingly, they are also looking for more amenities, including food service, fitness facilities, a common conference center, on-site property management, and access to retail. As for larger tenants, you see a trend toward developers planning new buildings specifically to fit their needs. There are far fewer office properties being built on spec, and developers are researching the expansion plans of large tenants.
WBJ: How does the future look for commercial real estate in this region?
DeSimone: I believe it is very good. People talk about Massachusetts losing population, but Metrowest has the state’s fastest-growing population. It is also the area with some of the highest incomes, and there are plenty of well-educated workers to meet the expansion needs of growing companies. It’s also a great place to live, with high-quality schools and colleges, plenty of retail and other amenities.
WBJ: What’s the potential of Worcester’s CitySquare project?
DeSimone:The design is fantastic, and the fact that it will be a mixed-used project, where people can live, work, and shop, is very important. What it needs is a large tenant, such as a medical office user, one of the large corporations in town or the colleges, to make a major space commitment. Once you have that, the project should really take off and will do a lot to revitalize the city.
This interview was conducted and edited for length by WBJ Chief Editor Larry Maloney.
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