A Solid Year For Commercial Real Estate
Office space in Central Massachusetts may not be leasing for $100 per square-foot, as it reportedly is in some of downtown Boston's best buildings, but brokers here say 2007 was a solid year.
At first glance, it might appear that last year was a down year for commercial real estate sales.
The top two sales on our 2006 list were $222 million and $135 million. By contrast, the top two sale transactions in 2007 were $68 million and $63 million.
But pay close attention to the bottom of this year's list, which finishes with sales of more than $8 million. Last year, our list of the biggest sales of 2006 was rounded out by sales of less than $2 million.
Borough Domination
This year's commercial leases seem to be in line with last year's, although this year's largest lease, at more than 490,000 square feet, blows last year's top lease of 180,000 square feet out of the water.
The towns in which these large deals take place will come as no surprise to anyone. Once again, our lists feature a great number of properties in the boroughs, Franklin and Worcester.
Far fewer commercial transactions than residential transaction take place during any given year, which makes average prices less meaningful, Kelleher said.
"You almost have to throw out the low and the high," McKinley said. "You get a couple of deals (every year) that either happened or didn't happen because of timing, and that can really skew the results."
Kelleher's top sale of 2007 was $10.5 million; not a blockbuster, but when all was said and done "2007 was our best year ever," he said.
"My intuition is that 2007 was a good year for the commercial market. It wasn't booming, but it was solid," McKinley said. He said low interest rates and a "decent business environment and growth" kept the market, at least in the immediate Worcester area, healthy.
Money To Invest
McKinley said he's noticing a trend that will be important in 2008 and 2009: "People with money" whose confidence in the stock market may have dwindled over the past year, are turning more frequently to commercial real estate as an investment.
Retail properties, office buildings and other properties that provide owners with multiple tenants and steady income could become more popular in the coming year or two, McKinley said.
Wayland-based R.W. Holmes Realty Co. also had a record 2007, which bested a record 2006, according to John Eysenbach, the firm's executive vice president.
Eysenbach said Holmes' success in 2007 was partly due to the fact that the firm focuses on small industrial properties that sell for less than $10 million.
"There's quite a bit of demand for small industrial, for distribution, not manufacturing," Eysenbach said. "That's where 80 percent of the business is these days."
Like McKinley, Eysenbach noted that the residential real estate market has virtually no direct effect on the commercial market, but the general economy, and especially the finance and lending sectors, does. And the finance and lending sectors tightened in 2007 as a result of the residential real estate nosedive.
That put some of the largest brokers in the region in a bad spot toward the end of 2007, Eysenbach said.
The big Boston firms, like CB Richard Ellis, Cushman & Wakefield and Jones Lang LaSalle "were hiring brokers, and their investment sales groups focus on the $30- $40- and $50-million sales, so their sales groups took a major hit in the third and fourth quarters. It affects their bottom line dramatically," Eysenbach said.
Eysenbach said he didn't agree that 2008 would be a buyer's market for investment properties, however.
"Eventually, the economy affects our industrial and office leasing activity," he said. "It's indirect, but personal spending, or the lack of it, will eventually trickle down into their businesses."
The highly scrutinized property that will become CitySquare in downtown Worcester didn't make it to our list of leases last year, but it does make an appearance with a 57,872-square-foot lease at 100 Front St. by the Fallon Clinic. A smaller, 22,900-square-foot lease to Protocol Services Inc. at 120 Front St. was not large enough to make our top 25.
There are a few specific areas that are magnets for large deals, both sales and leases. They occupied space on last year's list and they do again this year. Particularly, Locke Drive in Marlborough, which was the site of a three-property, $24 million sale in 2006 and was the site of a $13.8 million sale in 2007.
Franklin hits this year's sales list with a vengeance, claiming not only the top spot, but a total of five sales of more than $10 million. Last year, Franklin had two sales totaling about $11.6 million on the list.
There were no Franklin properties on last year's lease list. This year, tenants practically flocked to the town just off I-495 taking space as large as 227,000 square feet and three others of 65,000, 95,000 and 142,000 square feet respectively.
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