Big Moves Aren't A Big Deal For I-495 Market | High vacancy rates still a problem in MetroWest
First, BJ’s Wholesale Club decides to move from Natick to Westborough. Then, eClinicalWorks buys the former American Superconductor building, also in Westborough.
Those two big moves point to a recent increase in commercial real estate activity in MetroWest, especially along Interstate 495, but each leaves large chunks of vacant space behind. Brokers who work in the area say the market isn’t poised for any dramatic changes, or any dramatic comebacks.
“There’s no new construction,” said John Eysenbach, a broker with R.W. Holmes Realty Co. Inc. in Wayland. “What you see is kind of what you get.”
In the first quarter, office vacancy along I-495 reached 27 percent, according to Boston-based commercial real estate firm Colliers Meredith & Grew. That rate is the highest in Greater Boston and stands in notable contrast to the Route 128 market, which finished the quarter with vacancy of less than 20 percent.
So, while a move like BJ’s Wholesale from its longtime home of 1 Mercer Rd. in Natick to the former National Grid headquarters just off Route 9 in Westborough is a little piece of good news for the I-495 market, the market as a whole can’t get too excited.
BJ’s is moving into more space than it’s vacating, which is encouraging to Chris Tosti, a partner at Boston commercial firm CB Richard Ellis, which worked on the BJ’s deal.
Still, 495 “is a market that has struggled” to bring vacancy rates down, even in the property boom leading up to the recession, Tosti said.
What the move says is that lease prices have bottomed out and large tenants see clear financial advantages in doing deals now.
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Tenants “are moving not because they’re looking to change, but because they have space requirements, their lease is up, and they’re looking to survey the marketplace,” said Eysenbach.
Lease and purchase prices “have bottomed out, or are bottoming out,” and in the office market, “I don’t see the job generation” that could begin to heat up the market, he said.
“I don’t think we’re going to see much change. We’re very fortunate to have companies like BJ’s, Genzyme and eClinicalWorks that have sustained a level of employment that has sustained the economy,” Eysenbach said.
And the I-495 corridor’s lease rates aren’t enough to draw tenants from Worcester in any great numbers either, said John McKinley, partner at Kelleher & Sadowsky Associates, a commercial real estate firm in Worcester.
“Along 495, rents tend to swing on a much wider arch, much more wildly. In Worcester they’re much steadier. It creates a good deal and a good situation for someone looking for space along 495, but it doesn’t draw from Worcester. Worcester is still very competitive. A few years ago, we were much cheaper, but we’re still competitive,” McKinley said.
And the commitment of large companies to remain in the I-495 area has brought some stability, but is unlikely to prompt a full-on recovery.
Tosti noted that properties along Route 128, and even some in Natick and Framingham, have begun to see a “rate pop” that simply doesn’t exist along I-495. Even with lease rates at or below the levels of 25 or 30 years ago, tenants negotiating for space bring up price, almost without fail, Tosti said.
On one hand, activity among tenants of around 50,000 square feet is good. On the other, a move like those being undertaken by BJ’s and eClinicalWorks “sting” landlords who are unsure how they’ll fill those spaces.
In particular, the BJ’s property at Mercer Road has been leased up for a long time, according to Tosti. The BJ’s move was caught off guard with the vacancy.
“They’re wincing a little bit,” he said. “It’s on their mind every day.”
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