Tale of two real estate markets
Worcester’s stability, Metrowest’s glitz: Should either one be more like the other?
Commercial real estate brokers in Worcester say it’s unlikely that large, new corporate office buildings would ever grace the city’s skyline. It just doesn’t make sense economically.
The city’s office lease rates well under $30 per square foot aren’t enough to make up the cost of building those new office towers. And currently, there is no space available in downtown Worcester that would suit large new corporate tenants.
Relying almost entirely on small tenants, Worcester’s office market continues to post occupancy rates in the 90 percent range, and brokers describe the city market as everything from stable to static, to stagnant.
Compare that with the glitz and volatility of Metro West suburbs like Waltham, which has an average office lease rate of $32.48 per square foot. That rate has gone up 40 percent in the last two years, according to Brendan Carroll, research director at Richards, Barry, Joyce and Partners in Boston. Carroll says Waltham could see office lease rates hit $50 per square foot in coming years.
High-tech, biomedical and other firms supported by venture capital are more than willing to pay top dollar for fancy new digs in Waltham and other Metro West locales where all the other firms have their fancy new digs.
The problem is volatility.
"The boroughs are the ones that fluctuate the greatest," Carroll explains. "When things are going great, speculators come in and pay top dollar for assets, but when things get rough, you see big empty buildings, empty parking lots and less traffic on the Mass Pike."
In other words, the boom is great, and those areas tend to recover faster after any national economic downturn, but "the downtrend is sharper and more severe," Carroll says.
MetroWest’s office market posts vacancy rates well into double digits, and is still expanding, Carroll says. But it’s headed toward stability.
Of course, after stability comes another round of recession and recovery.
The Worcester region, on the other hand, "is not a very dynamic market," Carroll says. "It’s a static market. It’s not a location that start-ups locate in," but in economic slow-downs its vacancy rate doesn’t spike.
And it’s a good thing. Without that stability, says Will Kelleher of Kelleher & Sadowsky, the City Square project "wouldn’t stand a chance."
According to Kelleher, "If you look at Worcester as a whole, and you focus on the Class A and Class B buildings...vacancy rates are very low. The market’s gotten much stronger, there’s a lot of leasing, and rates are going up."
"We’re almost numb to driving by that huge albatross" Kelleher says of the property that would become City Square, "but people don’t realize, if those two buildings weren’t stabilized, that project wouldn’t stand a chance, and I think they help stabilize the whole Worcester market."
Those two buildings, which total about 450,000 square feet, are between 85 and 87 percent occupied, says Kelleher. The buildings would have a higher total occupancy, Kelleher says, but "they don’t accommodate small tenants as well, and Worcester is full of small tenants."
Kelleher and Sadowsky, the largest commercial real estate broker in the city, is the exclusive leasing agent for Berkeley Investments’ City Square buildings at 100 and 120 Front Street. The half-billion-dollar mixed-use City Square project is supposed to bring some Boston-style real estate pop to downtown Worcester.
But could it also bring a taste of the volatility that keeps Metro West brokers up at night? In a city of over 150,000 residents, crawling with potential employees in the form of college students, and very near two major interstate highways, Class A lease rates are between $11 and $27 per square foot, according to Colliers International. Could it push those firms to the suburbs?
Tim McGourthy, the city’s economic development director, doesn’t think so. "There’s always going to be some" businesses that would prefer the suburbs, McGourthy says, but the ones the city wants are the ones that want "the vitality of the city."
Some city governments live in fear of their downtown’s biggest corporate tenants moving to suburbs where bucolic green campuses, low taxes and unlimited free parking await.
"There’s some of that here," John McKinley, president of Kelleher & Sadowsky, says, but because of the relatively small size of Worcester’s office tenants, the impact is not as great as it would be in other cities.
The smaller spaces are easier to fill once a tenant leaves, says McKinley. Downtown Worcester posts high occupancy rates consistently, but the city’s empty office space is enough for 2,500 workers, experts warn, and no matter how low vacancy is, more could always be done to create jobs.
In some cases, companies are compelled to consider Worcester as an office location because the suburbs surrounding the city aren’t capable of handling more than a few employees. According to Roberta Schaefer, executive director of the Worcester Research Bureau, "companies look at other places in the region when they are looking at Worcester."
But some towns, like Shrewsbury, aren’t ready for prime time. "There are lots of inquiries in Shrewsbury," Schaefer says, "but they have a problem because they don’t have a lot of water supply. They have to ask right away, ‘how much water do you need?’ "
Unfortunately for Shrewsbury, it’s situated between Worcester, with its inexpensive office lease rates and city amenities, and Westboro, one of the popular "boroughs" that is very successful at attracting businesses.
"People compare Shrewsbury to Westboro, but there’s no comparison," Schaefer says, simply because "Westboro has much, much more," and is more prepared to accommodate business, she says.
WBJ Web Partners
Most Recent
Most Recent
0 Comments