Corridor Improvement – Commercial Brokers See I-495/Route 9 Rebound
Office, Industrial Market Scores Slow, Steady Growth
By Garry Holmes and Craig Johnston
The commercial real estate market along the Route 9 to I-495 corridor has started to show signs of improvement.
Both the office and industrial markets experienced an uptick in activity during the first quarter of 2012. We expect this trend to continue through the rest of the year.
The I-495/Route 9 office market (Southborough, Westborough and Marlborough) totals 8,134,132 square feet of office space with a vacancy rate of 28.4 percent. Marlborough is carrying the highest availability rate at 33.4 percent, with an average asking rental rate of $17 a square-foot. It should be noted, though, when you eliminate the former Hewlett Packard buildings, which total 740,000 square feet, the vacancy in Marlborough declines to 21.2 percent.
We feel confident these markets will see positive absorption in 2012 because leasing fundamentals are strong, and most landlords are in a strong financial position, allowing them to offer tenants very attractive concessions. The average asking rental rate for class A office space is $19 a square foot, and the average asking rent for class B space is $16 a square-foot. We are detecting a number of tenants choosing a flight to quality and relocating to the class A properties. As such, owners of Class B buildings are having the biggest challenge securing and retaining tenants.
The Southborough market has benefited from the positive activity presently occurring in the Wellesley/Natick/Framingham markets, where a lack of quality space and increasing rental rates have driven down the availability to 11 percent from 17 percent just 18 months ago.
The office leasing activity so far for 2012 primarily features small- to mid-size transactions, such as SimpliVity expanding to 25,000 square feet and Arris renewing 26,000 square feet at 8 Technology Drive in Westborough. Glass House Technology is moving from Framingham to Southborough, leasing 12,000 square-feet at 352 Turnpike Road. Thermoflow, of Sudbury, just inked a deal for 10,000 square feet at 2 Willow St. in Southborough.
The big news for this quarter is Framingham-based TJX Cos. Inc. planning on expanding into the former Fidelity campus in Marlborough. This will be a huge boost to this area, and we expect some of TJX’s vendors will look to lease space in Marlborough. Atlantic Management is also courting a few large users of 150,000 to 550,000 square feet for the former Hewlett Packard site in Marlborough which can accommodate up to 2 million square feet.
The city of Marlborough has been proactive in using its economic development team and pro- business mayor in helping attract and retain businesses. We have seen a trend of companies renewing and expanding at 33 Boston Post Road in Marlborough, including Environmental Chemical Corp., Softcode and Bay Path Healthcare.
The industrial market has seen positive activity as well, with Ameridose set to close on 205 Flanders Road in Westborough for 76,500 square feet at a price of $4.6 million. Also, Monnick Supply will be relocating to135 Maple St. in Marlborough in an 18,500-square-foot retail building it purchased for $1.4 million. Micro Chem of Newton is also looking to locate in the I-495 West area, searching for 40,000 to 50,000 square feet of flex space.
The Industrial vacancy rate over the last 12 months has dropped slightly from 29.8 percent to 28.7 percent. Most of the activity is with buildings close to major highways, with high bay space, multiple loading docks and heavy power. In general, the asking rents for this space range from $6.25 to $7.75 triple net lease (NNN). Buildings with lower ceiling heights (14 feet to 18 feet), poor loading access, located further from the highways are having very limited success.
Over the last couple of years, we expected a large number of landlords would turn over the keys to their lenders. The foreclosures have not happened, and surprisingly, there is a limited inventory of quality properties available for sale. There continues to be pent-up demand from institutional-grade and local buyers to purchase well-located quality assets both in the office and industrial sectors. We have seen a number of users as well, who have expressed interest in purchasing their buildings to better control their future, and to take advantage of favorable interest rates.
For the balance of 2012, we expect the recovery of the commercial real estate market to continue for the I- 495 West corridor with slow and steady growth, a decrease in vacancy rates and modest rental growth.
Garry Holmes is President and Craig S. Johnston is Senior Vice President of R.W. Holmes Realty Co. Inc. of Wayland.